Renren’s valuation for IPO questioned
By Kathrin Hille in Beijing and Lina Saigol in London
Published: April 29 2011 19:42 | Last updated: April 29 2011 22:28
Some investors have accused Renren, a Chinese social networking site, and its bankers of misleading the market over the company’s value as it seeks to raise $743m in a highly anticipated initial public offering on the New York Stock Exchange next week.
According to its prospectus, Renren has 131m activated users – people who have been through a multi-step registration process which involves submitting personal information, and replying to a verification e-mail. But it later disclosed that only 31m of them use the service at least once a month.
One critical investor said the Renren prospective IPO valuation was calculated using the 131m figure while US social networking site Facebook’s implied value is based on the number of its monthly active users, and that this was misleading for investors.
Another investor said that the Renren underwriters had used the 131m number to calculate its market value, even though only 31m use the service once a month.
“I believe the company and its bankers are abusing user statistics, making inappropriate comparisons that in effect inflate the value of the IPO by up to four times ... Renren is therefore being priced at a premium to Facebook and Tencent [another Chinese internet company], rather than a big discount.”
According to bankers, Renren generates just 80 cents per user compared with $4 for Facebook. “Monetisation at Renren is two years behind Facebook – that’s where the opportunity is,” said one banker working on the deal.
One US-based fund manager said underwriters were using artificially low revenue per user data to suggest that Renren still has huge potential to commercially exploit its user base compared with Facebook.
In a filing on April 15, Renren said its number of monthly active users increased by 7m to 31m in the first quarter.
The figure had raised eyebrows because it suggested much faster growth than the company had originally suggested.
On Wednesday, Renren filed an addition to the prospectus, saying that 2m of the 7m new users attributed to the first quarter were added in the fourth quarter last year, reducing the first-quarter growth rate by more than one-third to 19 per cent.
People close to the deal rejected the accusations, saying there was no single metric suitable for comparing Renren’s business with either Facebook or Tencent.
Despite these concerns, Renren is the first in a wave this year of highly anticipated social network IPOs including LinkedIn. Underwriters on Friday raised their price target for Renren’s US offering, expected on May 4, from $9-$11 per share, to $12-$14.
Underwriters Deutsche Bank and Credit Suisse declined to comment. Morgan Stanley could not be reached for comment. Renren did not respond to a request for comment.
Additional reporting by Telis Demos in New York
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