I’ve been following the recent news of Renren filing for an IPO. And although I’vent read through their prosectus in detail I understand we’re heading for a second IT-bubble. Are we going to call this one the Social Media bubble? And when will it burst?
Renren boasts 160M registered user accounts and is belived to have 31M active users as of April 2011 (I don’t know their definition of an active user though). Compare these figures to Facebook’s more than 500M active users, thats some 460M more active users for Facebook.
Renren remains China’s largest Social Networking site. I’m not sure how easy it is to compete in the online business for other Chinese companies, but US based companies such as Facebook, Twitter and Google are all famously blocked by the Great Chinese Internet Firewall.
So why is this a bubble? Everything spelled “Social media” attracts investors and VC’s today, just as anything spelled “Internet” back in the late -90s easily attracted venture capital. What’s different this time? Companies are making money, but not all of them. The only real business model is still advertising which Google and Facebook has harnessed. Twitter is struggling with monetizing it’s business, selling premium data to partners might be the way forward for them (read: firehose).
Renren had a revenue of $76,5M in 2010 after more than tripling in 2009. Reren resembles Facebook in many ways, they have an advanced ad-platform, developer platform and platform connection partnership with some 600 websites, much like Facebook Connect. 42% of Renren’s revenue is coming from ads and 45% from the games platform. This makes Renren look more like Zynga than Facebook in some ways.
So there is a steady stream of revenue coming from Renren, the operating profit in 2010 was $7,7M. But Renren is going to be hugely expensive to buy, the company’s IPO is valuing Renren to $4B. So the IPO will have a price-to-revenue ratio of 52 and a price-to-operating profit ratio of 519.
Kevin Kelleher, contributor at CNN MoneyFortune, writes:
“In a different market, a price-sales ratio of 50 would be laughed out of the IPO pipeline. But in this one, it could be so much catnip to investors who have been shut out of Facebook shares traded on private secondary markets. Facebook shares on SharesPost have been trading close to a $80 billion valuation, or 40 times its reported $2 billion revenue in 2010.”
To be continued…