RenRen (RENN) IPO Appetite Seen Huge, but Red Flags Abound

By Fund My Mutual Fund on 05/02/2011 – 8:16 am PDT -- Investing & Markets

As mentioned previously, the Chinese “Facebook” (notwithstanding the fact there are multiple companies in the space) RenRen (RENN) is set to IPO this week.  [RenRen Set to IPO May 4th]  I’ve been following this company (and space) closely since a reader alerted me to this area late last fall.  As we get closer to the IPO, some of the details coming out on the growth metrics of RenRen are looking less than impressive, but in the midst of a herd mentality with anything that has to do with “social media” or “local online buying groups” - it won’t matter to this market.  I expect the stock to soar on IPO day, and those who rely on facts or information to be left in the dust.   That said, eventually the wheat will be separated from the chaffe - it’s all fun and games until people begin to care about underlying metrics.

Reuters has a good story on some of the red flags a few other sources have highlighted over the past week on RenRen.  Again, none of it will matter at this moment as we are in a easy money mania, but if you are going to play this field, it’s still important to be informed because eventually facts matter.

  • When Chinese social networking site Renren goes public this week, investors will likely ignore big risks the company faces, and be lured instead by a combination of the words “China” and “social networking.”
  • The demand for Renren shares was clear on Friday when the company raised the expected price range of its IPO 30 percent to $12 to $14 per share
  • “Appetite to invest in China right now is so strong that some investors are willing to ignore factors that they wouldn’t in other markets,” said Mark Natkin, managing director of Marbridge Consulting, a Beijing-based company that advises investors on China’s Internet and telecommunications sectors.
  • Renren’s IPO filings do raise a handful of very serious questions
  • For one thing, Renren does not really seem sure how many users it has. According to its April 27 revised IPO filing, the Chinese Facebook clone’s monthly unique log-in user base grew by only 5 million, or 19 percent, in the first quarter of 2011 — not the 7 million, or 29 percent, it reported in its first filing only 12 days earlier.
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