Renren Weighs Game Unit Spin-Off 人人网考虑分拆游戏业务

By newsdoug on June 4, 2012

Renren (NYSE: RENN) investors tired of seeing losses quarter after quarter could soon have another alternative as China’s leading social networking site reportedly plans to spin off its online game unit into a separately listed company. If true, the news would mark the latest plan by an Internet company to spin off an individual business into a separate unit, as part of a broader trend by this sector to provide investors with clearer choices focused on specific businesses like games or e-commerce. Many of China’s Internet companies, especially the older ones, often have lots of different businesses, from portals, to games, e-commerce and social networking, under a single company. One or more of the businesses are often profitable and end up subsidizing the others that are losing money — frustrating investors who might like the profitable units but care less for the loss-making ones. In this latest case, media are citing unnamed sources saying Renren is crafting a plan to spin off its game unit by September, and would eventually list the business separately with an IPO. (Chinese article) Renren may have hinted at this move when it released its first-quarter results last month, at which time it said its online game revenue nearly doubled to $17.5 million, accounting for more than half of the company’s total revenue. (previous post) I’m normally not a big fan of online game stocks, as business for such companies can vary widely due to their dependence on 1 or 2 popular titles for success. But in Renren’s case, the company actually looks a bit more interesting than traditional rivals like Shanda Games (Nasdaq: GAME) and The9 (Nasdaq: NCTY), which are simply game companies and little more. Renren brings the added advantage of millions of users for its core social networking site, which provide an instant audience for its games. For that reason, it could probably find more success with so-called casual gamers, the people who like to play games occasionally but aren’t as fanatical as hard-core players who can spend hours playing at Internet cafes. Renren hasn’t commented in too much detail on the game business, but presumably its profitable or would become profitable by the time of a public listing, most likely late this year or in early 2013. That would be an attractive alternative for investors, who have shunned Chinese IPOs for nearly a year now partly because most of the ones to list during that time were losing money. An IPO for Renren’s game unit would parallel a similar move by Internet portal Sohu (NYSE: SOHU), which spun off its gaming business into a separately listed company, Changyou (Nasdaq: CYOU) several years ago. Others reportedly weighing similar moves include gaming company NetEase (Nasdaq: NTES), which may spin off its portal business; and Internet giant Tencent (HKEx: 700), which recently reorganized and has discussed spinning off its e-commerce business. Look for more such spin-off plans in the next 12 months, potentially providing stock buyers with some more focused, and perhaps even profitable, China Internet investment options.

Bottom line: Renren’s reported plan to spin off its online games business is part of a trend that could see a flurry of similar moves and IPOs by profitable Chinese Internet companies in the next year.

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