The Financial Times yesterday reported on the upcoming IPO of Chinese social network Renren.com:
The strong interest [in Renren’s IPO] stems from the fact that there is no major social media or social networking company open to public investment. With a Facebook IPO at least a year off, many investors are keen for a slice of “the Facebook of China”.
The offering is set to price on Tuesday in the US and begin trading on Wednesday. Highlighting the success of the pitch to market Renren as a Facebook proxy, the price range was raised on Friday from the initial $9-$11 to $12-$14. That could increase the deal size to as much as $743m, from the $584m planned originally.
The link in the excerpt above is from another Financial Times story that questions Renren’s valuation and user numbers, and is one of many signs that investors should take a cool and calm look at the company. But before looking at the doubts, let’s look at why the company is worth the excitement:
THE PROS
1. It’s probably the closest thing China has to Facebook
2. Highly competitive management, social network experience
Renren’s CEO is Joseph aka Joe Chen, a smart, tough investor and manager of Chinese Internet companies with a reputation as a formidable and experienced player and a savvy deal maker. Bill Bishop, one of the most astute observers of the Chinese Internet scene said “Joe Chen is a brilliant CEO with exquisite timing”.
Joe Chen and his team have experience building social networks long before the current craze: one of the company’s previous successes is Mop.com, a forum website that is something like a cross between Digg, Fark, 4chan and a Huffington-Post-for-bored-students. It was founded in 1997 and remains popular amongst the 18-32 age group (more than 20 million active users claimed). Mop.com will be spun off and will not be included in Renren’s IPO, but its survival and profitability are evidence of Chen’s team’s strength in monetizing social media and maintaining growth.
Another positive in terms of ownership and management : Japanese giant Softbank owns a stake of about 30% in Renren.
3. Advertiser support and early monetization
In the last few years, big brand advertisers in China have drunk the social media Kool-Aid. Renren was there, right from the beginning, offering brands a “Facebook for China” and the website is already very well known amongst media buying agencies and their clients.
Aside from advertising, Renren has also added two additional revenue streams: Nuomi.com, a Groupon-type service layered on top of the social network, and Renren Games which operates casual and MMORPGs on the Renren platform and elsewhere.
THE CONS
1. It’s not Facebook
Looking just at U.S. numbers, more than half of America’s 230 plus million Internet users are on Facebook. China has more than 400 million Internet users, but Renren only has only 20 to 30 million active monthly users and perhaps around 100 million registered users in total.
That’s a long way behind Facebook. There is no ubiquitous Facebook “Like” button on the Chinese Internet, and I have never heard of a young Renren user being horrified because their mom just signed up for the service.
Renren has simply not grown to occupy the place in Chinese life that Facebook has assumed in the U.S. and elsewhere.
Also worth scrutinizing all of the numbers very carefully. See for example: Renren Changes Key User Figure Before IPO, and the diplomatically titled Is Renren Seeing Explosive Active User Growth?
2. Brutal competitive landscape
In terms of the product, Renren’s closest competitor is Kaixin001, another Chinese Facebook clone that may seek an IPO this year. Kaixin is most famous in China for launching a Farmville type game long before Farmville was popular in the U.S.
But Renren is also up against dozens of other websites, including the following major players all of whom have very deep pockets:
- Tencent, the behemoth of the Chinese Internet that provides one service or another to perhaps 80% of Chinese Internet users and which operates the social networks Pengyou and QZone.
- Sina‘s Weibo, China’s most popular Twitter type service that also intergrates many SNS features and which is assumed by many industry insiders to be taking users from Renren and Kaixin001.
- Baidu, China’s search giant that has a number of social offerings and is widely rumored to be lining up a partneship with Facebook for the China market.
3. Revenues just aren’t that good
Finally, a story breaking today on Reuters: Renren’s audit committee chair quits ahead of IPO
Further reading:
RenRen Inc. in 25 Slides and “China’s Facebook” Renren to IPO Soon: Strengths and Challenges on Techrice
China Web 2.0: Joe Chen Wants it All, 2007 BusinessWeek profile of Joe Chen
The Cloner, Forbes profile of Wang Xing, orginal founder of Renren
The Rise and Stall of SNS in China, report by RedTech Advisors
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