Renren Drops Most on Record as Facebook Optimism Fades

Renren Declines Most on Record as Facebook IPO Optimism Fades
The Renren Inc. website is displayed for a photograph in New York. Photographer: Scott Eells/Bloomberg

Renren Inc. fell the most on record as Facebook Inc.’s initial public offering failed to boost investors’ confidence in the Chinese social networking website that won’t turn a profit until late 2013.

Beijing-based Renren tumbled 21 percent, the most since its IPO a year ago, to $4.95 at 3:48 p.m. in New York. Before today, the shares had gained 76 percent this year on speculation the Facebook IPO may prompt investors to put a higher valuation on social media companies.

Facebook, the world’s most popular social-networking site, was little changed from its $38 offering price, paring a gain of as much as 18 percent. Market makers in Germany earlier quoted bids for Facebook at around $70 a share. Renren, which reported a first-quarter adjusted loss of 3 cents a share this week, traded at 74 times trailing 12 months earnings, more than double the average of its industry, data compiled by Bloomberg show.

“Facebook was not trading as well as people expected,” which spills over to the Chinese Internet companies, such as Renren, said Echo He, an analyst at Maxim Group LLC in New York, in a phone interview. “From a fundamental perspective, Renren’s valuation is not sustainable.”

Renren will keep losing money until the third quarter of next year, according to analysts surveyed by Bloomberg. The company said in a statement on May 14 that it expects second-quarter revenue of $41 million to $43 million, less than the $46 million forecast by analysts in a Bloomberg survey.

Renren had 154 million registered users in China as of March. Facebook has more than 900 million users and generated $3.7 billion in revenue in 2011.

“Now that Facebook’s IPO is over, investors are refocusing on Renren’s fundamentals and the fact that online advertising in China has slowed down quite rapidly,” said Andy Yeung, a New York-based analyst for Oppenheimer & Co. “Renren benefited from the run-up to the IPO, but now there’s no more external catalyst. Investors ‘buy on the rumor and sell on the news,’ and today we had the news.”

(Corrects May 18 story to say Renren had 154 million registered users in the sixth paragraph.)
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