initial public offerings (IPOs) trading on American exchanges

Wednesday, May 4, 2011

‘Facebook of China’ Renren’s IPO prices after delay

China-based social network RenRen (人人网, translation: Everyone’s Network) priced its IPO at the top of its range Wednesday morning, raising about $743 million.

Renren’s IPO was expected to price Tuesday night and begin trading on the New York Stock Exchange Wednesday, but that has been pushed back one day, according to Reuters, which cited anonymous sources.

The highly-anticipated RenRen (NYSE: RENN), which has been dubbed the “Facebook of China,” planned to offer 53.1 million shares priced between $12 and $14.

It’s unclear what caused the delay. The company had two untimely news events hit right before the IPO. The company’s head of its audit committee, who is also a board member, quit after allegations of fraud against Longtop Finanicial Technologies, where Derek Palaschuk is CFO, WSJ reported. That came a week after the company revised down its unique user numbers to a rise of 19% compared to what it originally said was 29%.

Renren’s net revenues were $76.5 million in 2010, up 64% from $46.7 million in 2009 and up from $13.8 million in 2008. Renren had a net loss in 2010 of $64.1 million, down from $70.1 million in 2009.

So underwriters are expecting a valuation of more than $4 billion for a company with $76.5 in revenue. That’s 67 times sales, compared to 25 times for Facebook’s last funding from Goldman Sachs. That’s not cheap, as Kenneth Rapoza points out. Most of China’s Internet stocks like Baidu and Sina trade at 50 times forward earnings, Rapoza notes.

Reflecting strong investor demand, Renren raised the range of the offering last Friday from a range of $9 to $11 to a range of $12 to $14.

Even with 117 million users, Renren still has room to grow in China’s massive Internet market. Investors will be looking for strong growth from the company. In December China Internet stocks Dangdang and Youku were hot IPOs.

“Seeing that Facebook is not allowed in China, it’s the closest facsimile to Facebook that the Chinese government will allow,” said Scott Sweet, senior managing director at “Renren has a tremendous user base that use it on a daily basis.”

Still Renren is not the only social network in China–see Sina Corp.’s Sina Weibao–the “Twitter of China” with more than 100 million users. One major difference of Renren from Facebook is that Renren does not make most of its revenue from advertising the way Facebook does. Only 42% of Renren’s 2010 revenue came from ads, while 45% came from online games.

Major investors in Renren include Softbank Corp’s SB Pan Pacific Corporation, with 39.6%, venture firm DCM, with 8.6%; and growth equity firm General Atlantic LLC with 5.3%. Renren founder and Chief Executive Joseph Chen, is selling 13 million shares to take his ownership from 28% to 23%.

Morgan Stanley, Deutsche Bank and Credit Suisse are lead underwriters on the offering.

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