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Why Renren Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese social-networking company Renren (NYSE: REN  ) sank 10% today after its Q3 outlook disappointed Wall Street.

So what: Renren's Q2 results were better than expected -- loss narrowed to $9.3 million versus a year-ago loss of $25 million and revenue jumped 11% -- but downbeat guidance for current quarter reignites concerns over slowing growth going forward. Management blamed the disappointing outlook on delays in releasing games to the Android phone market, suggesting that its critical source for growth, mobile, isn't exactly an easy source for growth.

Now what: Management now sees Q3 revenue of $47 million-$49 million, well below the average analyst estimate of $65 million. "Although we face short-term monetization challenges, we are on track in executing our strategic priorities for the year aimed at securing our position in the highly competitive mobile Internet sector in China," Chairman and CEO Joseph Chen reassured investors. "This is a pivotal time to make strong advances in the opportunities we are seeing, as we remain committed to the long-term investments placed on our mobile initiatives." Of course, with the stock still up about 50% from its 52-week lows and trading at a price-to-sales ratio of 8, I'd wait for even more of a pullback before buying into that optimism.    

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