Seeking Alpha
IPOdesktop, IPOpremium (442 clicks)
Value, IPOs, long only
Profile| Send Message| ()  

After the close on Monday (June 20), Renren (RENN) announced yet another quarter of flat revenues of $21 million. This time, however, Renren reported a $2.6 million loss. That’s not supposed to happen to the ‘Facebook of China.’

Renren’s number of total “activated users” rose 4% 10 122 million at the end of May, Renren said, compared with 117 million at the end of March. Unique “log-in users” rose 6.5% to 33 million at the end of May from 31 million at the end of March. Yes, that's growth but it's hardly enough to justify a 36x annualized sales multiple for the March, quarter.

Renren did, however, hold out the carrot guidance of $29.5 million for the June 2011 quarter, which ends in 10 days. How could they not meet that projection so close to the quarter’s end?

It’s not a lead pipe cinch, however, because remember Renren had to correct its user figures within 10 days of the May 5 IPO. In addition, just before the IPO the head of its auditing committee was forced to resign, based on fraud charges against another company where he was a senior manager.

And why did Renren wait over a month past the normally expected announcement deadline for March quarter earnings of May 15, 2011? That delay clearly undermines, yet, again, investor confidence in Renren’s ability to produce timely accurate financial statements.

If Renren can’t (as proven) produce timely and accurate financial statements -- that are required for good management -- then perhaps it is navigating by looking in the rear view mirror?

So, yes, Renren’s stock may get a dead cat bounce. And perhaps the $29.5 million guidance for revenue for the June 2011 quarter is enough to cause the stock to increase in value. But then there’s the little thing of profits.

Did Renren take a lot of write-offs in the March quarter, to enable a profit in the June quarter? In other words, is it manipulating the income statement?

Renren’s stock is off almost 70% from the $24 high of the first day, so a lot has been discounted already. Most Chinese stocks have been in a downdraft this year based on their government’s monetary policy, which includes increasing bank reserve requirements (six times this year) and increasing interest rates (twice this year). The economic backdrop in China is not encouraging.

Our advice today is to “look but don’t’ touch.”

Renren (RENN)

June 2011

Quarterly results

March 2010*

June 2010*

Sept, 2010*

Dec, 2010*

March, 2011**

guidance

Revenues ($mm)

$14

$20

$22

$21

$21

$29.5

Gross margin %

75%

76%

81%

80%

80%

Profit (loss)

-$2.6

RENN adjusted net income

* p101, April 29 S-1 filing

$0.6

$5.2

$6.3

$5.1

-$1.1

Adj for estimated 25% tax rate

$0.45

$3.90

$4.73

$3.83

Income % of revenue

3%

20%

21%

18%

-5%

**Also excludes share-based compensation and impairments,

and a large negative adjustment on the fair value of its warrants in the year-earlier periods

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

annualized March 2011 qtr

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

Renren (RENN)

$2,980

36.2

-677

2.7

2.6

The Renren comments above may apply to the other Chinese IPOs mentioned in one of our previous articles 23 China IPO Disasters.

Here's an update with prices as of June 20, 2011. The average loss from the first day's close is an astounding -52%.

23 China IPO disasters

IPO

IPO

1st day

Price

From 1st

Date

price

close

June 20

day close

China Century Dragon

CDM

2/8/2011

$5.25

$5.30

suspended

-100%

Mecox Lane Limited

MCOX

10/26/2010

$11.00

$17.26

$2.84

-84%

ChinaCache International

CCIH

10/1/2010

$13.90

$27.15

$6.50

-76%

China Xiniya Fashion

XNY

11/23/2010

$11.00

$9.95

$2.72

-73%

SemiLEDs

LEDS

12/9/2010

$17.00

$25.76

$7.19

-72%

Global Education & Tech

GEDU

10/8/2010

$10.50

$12.20

$4.49

-63%

Renren

RENN

5/4/2011

$14.00

$18.01

$7.60

-58%

Trunkbow International

TBOW

2/3/2011

$5.00

$4.74

$2.05

-57%

Country Style Cooking

CCSC

9/28/2010

$16.50

$24.30

$10.60

-56%

NetQin Mobile

NQ

5/5/2011

$11.50

$9.30

$4.49

-52%

Lizhan Environmental

LZEN

11/19/2010

$4.00

$4.01

$1.95

-51%

NeoPhotonics

NPTN

2/2/2011

$11.00

$13.25

$6.48

-51%

Le Gaga Holdings Limited

GAGA

10/29/2010

$9.50

$11.26

$5.79

-49%

Bitauto Holdings Limited

BITA

11/17/2010

$12.00

$12.45

$6.74

-46%

Lentuo International

LAS

12/10/2010

$8.00

$8.32

$4.75

-43%

Ambow Education Holding

AMBO

8/5/2010

$10.00

$9.25

$5.40

-42%

Bona Film Group Limited

BONA

12/9/2010

$8.50

$6.60

$3.86

-42%

21Vianet Group

VNET

4/21/2011

$15.00

$18.80

$11.20

-40%

SYSWIN

SYSW

11/24/2010

$7.00

$6.20

$3.90

-37%

Xueda Education Group

XUE

11/2/2010

$9.50

$12.50

$8.03

-36%

BCD Semiconductor Manu

BCDS

1/28/2011

$10.50

$10.50

$7.50

-29%

Zuoan Fashion Limited

ZA

2/15/2011

$7.00

$7.04

$5.35

-24%

SouFun Holdings Limited

SFUN

9/17/2010

$10.63

$18.38

$16.73

-9%

23 China IPO disasters

Average loss

-52%

Source: Renren Strikes Out in the March Quarter