RenRen (http://www.renren.com), the China’s largest real-name social-networking site that dubbed “the Facebook of China”, raised US$743 million with its IPO on the New York Stock Exchange in May 4th, 2011. Its shares skyrocketed almost 71% up from the initial offering of $14.00 Wednesday to settle down at $18.00. With this, RenRen became the first IPO social networking site in the world, prior to Facebook.
RenRen, which means “everyone ” in English, was launched in 2005, originally as a way for college student to connect. By entering the market far earlier than its local competitor, RenRen was able to amass a large following. Now, it has 31 million monthly unique users, less than a third of its total 117 million registered users.
Moreover, the actual Facebook has been blocked by Chinese Internet censors for almost two years now. Authorities in the country strictly regulate content on the Web, and often ban overseas sites with politically sensitive content like Twitter and YouTube. This has left China’s social networking market ripe for local players. Therefore, it seems that RenRen has been the leader of SNS platform in Chinese market.
However, is RenRen actually ready for IPO? What makes RenRen so anxious to go public? Just for the title of the first IPO social networking site in the world? You know, the “teacher” Facebook, which has more than 500 million active users, delayed its IPO repeatedly.
In fact, while RenRen’s growth over the last several years has been very impressive, its revenue fell sequentially in the two most recent quarters. And it only holds about 25% of China’s active user market for social networks. Moreover, even though RenRen is dubbed “Chinese Facebook”, in no way does it match the scale of Facebook. It just has the similar SNS appearance with Facebook but even has not clear operating model. Besides, RenRen is facing a lot strong competition from its competitors such as Tencent’s Pengyou, a similar website that launched this January and now has an 18.1 percent share of the social networking user market and Sina microblog, the “Twitter of China”, which had grown to over 100 million users in March.
Since the time when RenRen IPO on the NYSE, it has arisen a great controversy in China and many analysts are interested in the true reason for RenRen’s IPO. Actually, no only RenRen, many Internet firms such as Youku.com, the “YouTube of China”, Dangdang.com, “the Amazon of China”, and Qihoo360 went public in the U.S. last year. It seems that once successful IPO, the missions of these Chinese Internet firms have completed. This narrow eyeshot and practice eager for quick success and instant benefit are very dangers. In contrast, Mark Zuckerberg hoping that Facebook can delay the company’s currency process because he not only for money interest, but hope to get financial and operational freedom.
But one thing is certainty, this IPO for RenRen is going to get them a lot of money. How RenRen uses this amount of money? Continue investing and get improvement and development? Or just want to raise money by going public to feather one’s nest? We have no idea now.
Meanwhile, an interesting phenomenon is that the U.S. market appears to have a big appetite for Chinese IPOs even though RenRen has not been the only company to have a brush with accounting issues. We admit that China is a big market that has about 457 million Internet users, but just because of this?
In short, if IPO is the tool for RenRen, even for most Chinese social networks firms, to circle money, coupled with American investors’ so-called “Chinese confidence”, it will be the nightmare of Chinese social networking and another bubble of Chinese Internet.
However, before the Bubble of the “Chinese Facebook” burst, RenRen still has time and opportunity to avoid this tragedy. It depends on how RenRen takes advantage of IPO to improve itself. All in all, the actual challenge has just started.