Can Renren Ride Baidu's Coattails to Match Facebook?

Renren (NYSE: RENN  ) will release its quarterly report on Wednesday, and longtime investors have to be disappointed by the Chinese social-media company's inability to regain much of the 75% its shares have lost since its early 2011 IPO. Even with Baidu (NASDAQ: BIDU  ) having taken an interest in parts of Renren's business, it's unclear whether Renren can use Baidu's leadership position among Chinese Internet companies to bolster its overall growth going forward in order to emulate American counterpart Facebook (NASDAQ: FB  ) .

Renren has a variety of different platforms in its arsenal, including its namesake social networking site, its Nuomi.com daily deals service, and its 56.com video service. So far, though, the company has failed to share the success of its American social-media counterparts, as Renren struggles to find ways to keep revenue growth rising long enough to become profitable. The uncertain question Renren faces is whether having Baidu partially aligned with its interests will help it find the success in China that Facebook has experienced recently in the U.S. Let's take an early look at what's been happening with Renren over the past quarter and what we're likely to see in its report.

Stats on Renren

Analyst EPS Estimate

($0.10)

Year-Ago EPS

($0.04)

Revenue Estimate

$48.26 million

Change From Year-Ago Revenue

(4.2%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Renren recover eventually?
In recent months, analysts have had mixed views on Renren earnings, widening their loss estimates for the third quarter by a penny per share but narrowing their 2014 loss projections by $0.04 per share. The stock has continued to languish, losing another 7% since late August.

Renren came into the quarter on a very uncertain note, with second-quarter results that raised big questions about the social media company's ability to keep its growth rate high enough to satisfy investors. Sales grew by only 11%, half the rate that investors had hoped to see, with its online-game division seeing only 1% growth. Online advertising only gained 2%, badly lagging Facebook's much-faster growth rate and showing that Renren hasn't done nearly as good a job of getting monetizing its growing user base as Facebook has.

But the big news for Renren came in mid-August, when Baidu expressed interest in buying Nuomi.com from Renren. The parties structured the deal to have Baidu spend $160 million to take a 59% stake in the daily-deals website. Baidu hopes that with almost a third of Nuomi purchases coming from mobile devices, the acquisition will help Baidu boost its own monetization in mobile and help build on its earlier buyout of mobile-app marketplace 91 Wireless earlier in the summer.

Still, a major threat to Renren could come from opening up the Chinese market to foreign competition. In September, reports surfaced that China might lift bans on Facebook, Twitter, and other international sites, allowing them to compete against Renren and other Chinese counterparts. The Chinese government later said that the initial reports were incorrect and that the ban would remain in place, but even the threat could be enough to keep the company on edge in the future.

In the Renren earnings report, watch to see what impact Baidu's stake in Nuomi has on the social network company's overall results. Without finding new ways to grow, Renren doesn't stand much chance to catch up with Facebook and turn things around from its poor post-IPO showing.

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  • Report this Comment On November 26, 2013, at 11:22 AM, fun2bretired wrote:

    Renren has had problems. Not being completely honest with its IPO numbers. I know I lost my shirt on this one, but made it up with Baidu. It will take investors a long time to forgive Renren. It went from over $20 IPO down to $3. It made its founder a billionaire.

    Need to keep seeing honest numbers from this Chinese company and maybe that's where Baidu can help.

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