Renren (RENN) recently attended Deutsche Bank's dbAccess Asia Conference. The company met with institutional investors to primarily talk about the general advertising environment, mobile, and the group-buy initiative.
Key highlights of the conference:
- Expect weakness in advertising growth due to uncertain macro environment
- Targeted ads are still in early stages of development, but are beginning to outgrow traditional advertising channels (e.g., display ads)
- Renren plans to invest between $30 million and $50 million in its mobile initiative
- Management expects to launch an upgraded Renren app in the second half of 2012
- Group-buy unit, Nuomi, is likely to continue face headwinds as it struggles to break even
Management was cautious about display ads for the second half of 2012 due to macro weakness and uncertainty. I would note that Renren still depends mostly on display ads, given that its targeted ads are still in their infancy. According to management, targeted ads outgrew display ads in Q1 as advertisers from large to small business experiment with the platform. Targeted ads allow advertisers to leverage the information on Renren's real-name profiles to broadcast the advertisements to the target market, hence providing advertisers with a more effective platform than traditional channels. However, targeted ads currently have immaterial impact on Renren's total revenue, as they are still in the early stages of development. Unfortunately, it remains unclear when targeted ads will become a meaningful driver for Renren.
Mobile is a key focus for Renren as the company looks to invest $30-$50 million this year on its mobile initiative to encourage greater user adoption and engagement. Currently, mobile accounts for 40% of Renren's MAU and 50% time-spent. The percentages are likely to increase as low-cost smartphones become more prevalent in China. I would note that 60% of Renren's mobile user base accesses the platform via smartphones. Because mobile is a critical component of Renren's strategy, the company is investing in R&D headcount to develop more features -- including push-talk, LBS and social recommendations -- to maintain user engagement.
According to management, Nuomi's commission rate has climbed from 4%-5% to 7%-8% due to the declining number of group-buy sites in China. Over the past year, the number of group-buy sites in China has declined from over 6,000 to 5,000 amid industry consolidation. However, the unit is still unprofitable. As of last quarter, Renren generated $2.5 in revenue but registered $8.2 million in net loss, after factoring in $0.3 million cost of goods sold and $10.2 million operating expense.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.