In the following video, senior tech analyst Eric Bleeker explains why investors see potential in RenRen (NYSE: RENN) and other Chinese Internet companies. RenRen is a social-networking service that's considered the "Facebook (NYSE: FB) of China," a nation with more than 500 million Internet users and growing. China blocks Western social-networking sites, giving native companies a chance to move in, and even if Facebook did manage to leap over the "Great Firewall of China," it would face regulations on advertising that would make it difficult to operate.
On the other hand, the opportunity might be busted a little. RenRen makes money through games and daily deals. If you've looked at charts for Zynga (NASDAQ: ZYNG) and Groupon (NASDAQ: GRPN) lately, you can see how this might be a problem. In this regard, RenRen is dealing with the same problem as Facebook. As Internet users here increasingly switch to mobile, most of RenRen's users are on the desktop, and investors don't like companies that burn money on business models shunned stateside.