Renren Growth Continues, Profits Elusive 人人网营收增长盈利仍未可期

By newsdoug on February 15, 2012

A day after social networking site Kaixin released some limited financial information hinting it may soon restart its stalled IPO process, its chief rival, publicly listed Renren (NYSE: RENN) has released its own preliminary fourth quarter results telling investors not to expect a profit anytime soon. The news sent a chill over Renren stock, which tumbled by more than 6 percent in after-hours trading. In fact, the preliminary announcement doesn’t look all that bad in terms of top line growth, despite the gloom profit outlook. (company announcement) The company said it will meet its expectation for fourth-quarter revenue growth in the 50-55 percent range, and said it should be able to maintain that rate for this year — a positive outlook since Kaixin said its own revenue growth last year came in at a more modest 41 percent. (previous post) But on the more worrisome level, Renren said it should post an operating loss of around $16 million for the fourth quarter, continuing a trend of widening losses from a company that was briefly profitable before sinking into the loss column last year. Furthermore, Renren said it will not be profitable this year, as it focuses instead on building up its business. While I applaud Renren for its honesty and also its focus on long-term growth over short-term profits, the widening of its losses will surely come as a major disappointment for investors, who thought they were buying into a company that was already profitable when Renren first listed its shares last year. Since then Renren’s stock has moved steadily downward, and at its current level of around $5 is at less than half the IPO price of $14 per share. The company is trying to beef up its offerings by investing heavily in online video, which is a hot area now dominated by players like Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO). Again, I applaud this kind of diversification drive, though I also question Renren’s approach, as it might be better served by forming a strategic alliance with an existing player rather than building up its own online video business. Kaixin made a step in that direction when it sold a stake in itself to leading Internet firm Tencent (HKEx: 700) last fall, which looks like a smarter approach to me. At the end of the day, it really doesn’t matter how either of these companies find its route to sustained profits, as long as they do find such a route. I’m not completely convinced that either company has found such a formula yet, which could mean more turbulence ahead for Renren stock and similar volatility for Kaixin if and when it makes its IPO, which could be soon as it seeks to capitalize on hype from Facebook’s upcoming listing.

Bottom line: Renren’s latest preliminary results announcement show the company is still at least a year away from its goal of sustained profits, boding poorly for its stock this year.

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