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Why Renren, Inc. Shares Plunged Today

By Brian D. Pacampara, CFA - Mar 19, 2014 at 12:35PM

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Is this meaningful or just another movement?

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 ( RENN -0.46% ) sank 13% today after its quarterly results and outlook disappointed Wall Street.

So what: The stock had plunged sharply in recent weeks on concerns over continued revenue weakness, and today's Q4 results -- operating loss of $42.6 million on a revenue decline of 29% -- coupled with downbeat guidance only confirm those headwinds. In fact, Renren's monthly active users dropped 20% to 45 million in December while gross margin plunged to 42.2% from 59.6% in the year-ago period, prompting investors to jump ship on the expectation of even further declines ahead.

Now what: Management now expects Q1 revenue of between $23 million and $25 million, representing as much as a 45% decline over the year-ago period. "Looking into 2014, we will further invest in our core business and cement our strength in China's university and young user demographics, a segment we have always served best," Chairman and CEO Joseph Chen reassured investors. "We aim to continue to build the intrinsic value of our company assets that can bring long-term, sustainable value to our shareholders." Given Renren's still-pristine balance sheet and beaten-down stock price -- now off about 30% from its 52-week highs -- the downside might even be limited enough to bet a bit on that bullishness.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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