Renren Inc., China’s biggest social- networking website by page views, is seeking a valuation more than double that of Facebook Inc. as it aims to raise as much as $743.4 million in a U.S. initial public offering today.
The Beijing-based company is offering 53.1 million American depositary receipts for $12 to $14 each, according to a filing with the U.S. Securities and Exchange Commission. At the midpoint, Renren would trade at 67 times last year’s sales, compared with 25 times for Facebook as valued by Goldman Sachs Group Inc.’s investment in the U.S. company.
Renren is demanding a premium, with China’s economy projected to grow three times faster than the U.S. and about two-thirds of the population not yet online. The company, which also offers games and daily deals for consumers, plans to use the proceeds from the IPO to expand as it faces competition for advertisers and users from local Internet companies Sina Corp. and Tencent Holdings Ltd. (TCEHY)
“You can say it’s overvalued, but people are going to buy it anyway,” said Darren Fabric, a Chicago-based managing director at IPOX Capital Management LLC, which oversees about $2.5 billion and invests in IPOs. “The growth is there, and you’re paying for it big-time.”
Renren and at least 17 other companies worldwide are attempting to raise at least $2.5 billion in IPOs this week, according to data compiled by Bloomberg. In the U.S., April had the most new filings for initial offerings since August 2007, Renaissance Capital LLC, based in Greenwich, Connecticut, said last week.
At least three Chinese Internet companies announced IPO plans last month as Youku.com Inc. (YOKU), the Beijing-based online- video site, trades at more than 100 times 2010 sales following its December IPO.
“We’re at least in exuberant territory, if not a bubble, with Chinese Internet stocks,” said Michael Yoshikami, who oversees $1.1 billion as chief investment strategist at YCMNet Advisors in Walnut Creek, California. “Investors need to be very aware that if the company doesn’t execute on these lofty expectations, they are in for a rude awakening.”
After its offering and a concurrent private placement to investors, Renren may have a market value of $5.1 billion, based on the $13 midpoint of the offering range.
Renren, whose name means “everyone” in Chinese, had 117 million users as of March 31, less than a quarter of the more than 500 million users Facebook has globally. The company boosted the maximum sought in its IPO by 27 percent on April 29.
Facebook, which is banned in China, said in January it had a market valuation of $50 billion after raising $1.5 billion from investors including Goldman Sachs and Russia’s Digital Sky Technologies. The Palo Alto, California-based company may have reached about $2 billion in revenue last year, three people with knowledge of the matter said in December.
Some Chinese Internet stocks may have “high valuation risks,” said Kai-Fu Lee, a former Google Inc. executive whose Beijing-based venture fund invests in startups, in an April 15 interview on Bloomberg Television.
Qihoo 360 Technology Co., the Beijing-based provider of computer anti-virus products and Web browsers, has almost doubled in value to 56 times last year’s sales since its March 29 IPO, when it raised $175.6 million. Youku.com, which has booked combined net losses of 681 million yuan ($105 million) since 2007, has more than quadrupled in value since its Dec. 7 IPO, Bloomberg data show.
Derek Palaschuk, chairman of Renren’s audit committee and an appointee as independent director of the company, resigned from the positions over the weekend, Reuters reported yesterday, citing an interview with Palaschuk. He resigned to prevent an accounting-fraud accusation at Longtop Financial Technologies Ltd., where he is chief financial officer, from affecting Renren, the report said.
Palaschuk’s name, which appeared in several of Renren’s F-1 registration statements, was absent from yesterday’s filing. He previously served as the CFO of Beijing-based ELong Inc., and also had also worked at Beijing-based Sohu.com Inc.
Softbank Corp., Japan’s third-largest wireless carrier, owns about 40 percent of Renren and isn’t offering shares in the sale, according to the prospectus. Renren founder Joseph Chen, who is also the chairman and chief executive officer, will sell 13 million shares to trim his stake to 23 percent from 28 percent. General Atlantic LLC, based in Greenwich, Connecticut, and DCM, the Menlo Park, California-based venture capital fund, own stakes in Renren as well.
General Atlantic is also an owner of SouFun Holdings Ltd. (SFUN), the operator of China’s biggest real-estate website, whose ADRs have more than doubled on the New York Stock Exchange after its $125 million IPO in September. DCM is an owner of E-Commerce China Dangdang Inc., the country’s biggest online book retailer, whose stock is 42 percent above the Beijing-based company’s IPO price after a Dec. 7 share sale.
Wang Yi, director of public relations at Renren in Beijing, declined to comment on the pricing. Morgan Stanley (MS), Deutsche Bank AG (DBK) and Credit Suisse Group AG (CSGN) are leading the offering. The ADRs will begin trading on the NYSE tomorrow under the symbol RENN.
China had 457 million Internet users at the end of 2010, and about half of them used social-networking websites, compared with a total population of 1.33 billion in 2009, according to data from the government-sponsored China Internet Network Information Center. The Asian country’s economy will grow 9.6 percent this year, versus 2.8 percent for the U.S., according to estimates from the Washington-based International Monetary Fund.
‘So Much Hype’
“Renren is really sitting at the intersection of those two trends, which is why there’s been so much hype about it,” said Nick Einhorn, an analyst at Renaissance Capital. “Whether investors think all of those companies are overvalued is certainly something you could argue for, but given where Youku and Qihoo are trading, it’s not unreasonable to expect Renren to get the same kind of valuation.”
Besides its social network, Renren operates a group-buying site that offers daily deals on local services and cultural events, Nuomi.com, and an online games site. In 2006, Renren acquired Xiaonei.com, a social networking site founded by graduates of Beijing’s Tsinghua University in 2005. Renren, formerly known as Oak Pacific Interactive, began operations in 2002, according to the IPO prospectus.
“The world has never seen the kind of growth we’re seeing out of Internet companies in China,” said Lou Kerner, a social media analyst at Wedbush Securities Inc. in New York.
Renren will be the first social-networking site to go public in the U.S. LinkedIn Corp., based in Mountain View, California, filed for a $175 million IPO earlier this year and has yet to release terms for the share sale.
In other IPO news, Boingo Wireless Inc., an operator of wireless Internet hotspots, is attempting to raise as much as $80.8 million offering 5.77 million shares at $12 to $14 each. RPX Corp., the San Francisco-based provider of a patent-risk management service, is seeking $131.4 million selling 7.3 million shares at $16 to $18 apiece.
Thermon Group Holdings Inc., the San Marcos, Texas-based provider of equipment that protects industrial pipes from freezing, aims to raise $140 million selling 10 million shares at $12 to $14 apiece. VOC Energy Trust, the Austin, Texas-based owner of oil and natural-gas properties in Texas and Kansas, seeks $232.8 million selling 11.1 million units at $19 to $21 each.
Glencore International AG, the Swiss commodity trading firm seeking $11 billion from a dual-city IPO in London and Hong Kong, is scheduled to announce a price range for the sale tomorrow, according to company documents. Glencore’s IPO, if successful, will be the biggest worldwide since General Motors Co. raised $18.1 billion in November, data compiled by Bloomberg show.
========================================================= DEALS TO WATCH THIS WEEK: Company No. of Shares Price Range Date Expected or ADRs Renren 53.1 million $12 to $14 May 3 Boingo Wireless 5.78 million $12 to $14 May 3 NetQin Mobile 7.14 million $9.50 to $11.50 May 4 ==========================================================
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