Renren Still Waiting to Break Out

 | Feb 26, 2013 | 10:50 AM EST  | Comments
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yoku

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dang

One of the highflying stocks from a couple of years ago was Renren (RENN). It was supposed to be the Facebook (FB) of China when it IPO'ed on the heels of Youku (YOKU) and Dangdang (DANG), which had recently held successful IPOs.

Of the three, Youku is the only one trading around its offer price. Dangdang and Renren have both stumbled badly.

After getting to $20 on its initial trading day, Renren is now trading around $3. That's very close to a 52-week low for the stock.

Renren has recently made a big shift in focus to mobile. Although revenue has been holding steady, the losses have as well.

Many analysts are expecting Renren's advertising revenue in 2012 to have totaled about $60 million, about the same as that of 2011 ($59.6 million).

For fiscal 2012, Renren's advertising revenue for the first through third quarters accounted for about 29%, 34% and 34% of total revenue. So total revenue for the year is expected to be $180 million to $190 million; this would represent year-on-year growth of 60%.

However, even though the total revenue is growing quite fast, Renren still had a loss from operations of about $20 million for the past two consecutive quarters.

According to the stats in the third quarter 2012, Renren's cash, term deposits and short-term investments are now $890 million, which is 20% below its market cap of $1.14 billion.

If it reports another $20 million loss for the fourth quarter of 2012, and if it decreased its cash, the cash would be about $870 million, which would be around $2.30 per share.

Therefore, in the short term, the floor price for the stock could be the company's cash-per-share price of $ 2.30.

There could be a time after that when Renren becomes very attractive as a short-term turnaround play, but I don't think we're quite there yet.

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