Renren. A name that most non-financial industry affiliated Americans have not heard before yesterday. I would even be willing to bet that many WSO users had never heard of The Chinese Facebook before yesterday. In a nutshell, Renren offers games and daily deals to users and is the first Chinese social-networking site to go public in the U.S.
China's biggest social-networking website made a splash with an eye-popping valuation. Neither because of the share price or IPO amount, but certainly due to the forward looking implications:
The Beijing-based company sold 53.1 million American depositary receipts at $14 each, the high end of the proposed range. The stock rose $4.01 to $18.01 as of 4 p.m. Including the sale of 7.97 million ADRs sold through an overallotment option with underwriters, Renren's IPO raised $855 million. At its $14 initial price, Renren would be valued at 72 times last year's sales, compared with 25 times for Facebook.
The successful leveraging of social networks demonstrated by Facebook is leading to massive speculation in what is quickly becoming its very own sector.I for one am more than a bit concerned by this rampant speculation in social networks. I have heard all of the arguments for why the valuations are warranted. I begrudgingly accept many of those arguments with regards to Facebook due to the audience it targets. I am, however, highly skeptical of the notion that Chinese social networking companies should receive 3x higher valuations when the purchasing power of their audience is still an unknown commodity.
I see a lot of similarities with the original tech bubble beginning to form. With the dwindling opportunities for foreign investments in China, is this just another method of market actors trying to speculate on China? Or is this perhaps the beginning of a fruitful trend that will bring greater transparency to the Chinese economy and balance to the global economy as a whole?
Any Renren buyers out there? I would love to hear your thoughts on the subject.