FINANCE: Shanda, Renren Ditch Internet to Try Finance

Bottom line: Shanda Group is likely to emerge this year as China’s next major global investor with 2-3 major deals, while Renren’s plans to transform into a high-tech investment company stand a 50-50 chance of success.

Shanda, Renren see future in investment

Two former Internet high-flyers that later flamed out are looking for new beginnings in finance, with Shanda Group and Renren (NYSE: RENN) both discussing their transformation plans in separate reports this week. Shanda was once China’s leading online game operator, and its chief Chen Tianqiao dreamed of creating an online entertainment empire. Similarly, Renren was once China’s leading social networking service (SNS) opeartor, at one time often called the Facebook (Nasdaq: FB) of China.

But both companies got overtaken in recent years, and were largely marginalized by better-run rivals like Tencent (HKEx: 700), NetEase (Nasdaq: NTES) and Weibo (Nasdaq: WB). As a result, Shanda founder Chen Tianqiao has recently sold off the various pieces of his former empire, most recently closing the sale of his original Shanda Games operation. Renren is also in the process of privatizing, as its core SNS business rapidly shrivels.

One thing both of these companies have is cash. Shanda’s money pot should be quite large, and comes from the recent sale of its many assets. Based on all of those sales, I would estimate its cash pot is worth at least $5 billion, and possibly much more. Renren has far less, but its latest balance sheet includes nearly $200 million in cash. It also has another $600 million in recent longer-term investments, which include a number of tech start-ups, as part of its plans to transform into a high-tech investor.

The latest signals about Shanda’s future come in a briefly worded statement, in which the company says it has officially divested itself of Shanda Games, one of its last remaining major assets from its earlier life. (company announcement) The company adds that having divested most of the assets from its previous life as an Internet company, it will now focus on its transformation to a global investment holding company.

In the statement Shanghai-based Shanda says it will invest in a number of areas going forward, including Internet, media, healthcare and high-tech financial services. That looks quite similar to the profile of another Shanghai-based company, Fosun International (HKEx: 656), which has risen to prominence in recent years with a growing number of big investments, including French resort operator Club Med (Paris: CU) and New York City’s One Chase Manhattan Plaza.

Suited to Deal-Making

I’ve followed Shanda and Chen for quite a while now, and can say with a fair degree of confidence that this new job is far better suited to his personality and strengths. Chen was always a deal maker at heart, and didn’t have very good people management skills. Both of those traits are more suited to the new company he’s trying to create, and I expect we’ll see some of the first major deals by this new Shanda Group announced later this year.

Meantime, Renren CEO Chen Yizhou is also discussing similar though far more modest plans to transform his company into an investment vehicle. (Chinese article) In a media interview this week he points out that his company has invested in at least 3 US high-tech start-ups over the last year, SoFi, Motif and Fundrise, all involved in the fast-growing area of high-tech financial services. Renren has also invested in some Chinese tech companies, including Xueqiu, an online community for stock buyers.

The rapid growth in its investment portfolio contrasts sharply with Renren’s core SNS service, whose revenues shriveled 25 percent to a paltry $8.6 million in its latest reporting quarter. Chen has shown himself to be a relatively savvy investor in his limited past activities. His most notable success was his investment in Nuomi, a group buying site that he later sold to leading search engine Baidu (Nasdaq: BIDU) for more than $200 million. I’m less certain about his latest plans for transforming Renren, but at least applaud him for finally taking some initiative to resuscitate and transform his company.

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