Bottom line: Rallies for Renren and 500.com stock on positive news are likely to be short lived due to both companies’ limited prospects, while 55Tuan’s IPO is likely to see more delays and its shares are unlikely to debut next week
As we head into the long weekend for the Easter and Tomb Sweeping holidays, a string of developments are providing a bit of cheer to shareholders of embattled social networking site Renren (NYSE: RENN) and online lottery ticket seller 500.com (NYSE: WBAI). Renren’s good news comes in a newly announced Dutch auction for its stock, a variation of traditional share buybacks. At 500.com, the good news comes in the form of chatter that Beijing will soon roll out new policies that pave the way for resumption of the online lottery ticket sales that are the company’s main business.
At the same time, the mystery of a missing IPO for group buying site 55Tuan continues, with one of the company’s officials finally commenting on the matter after several deadlines have passed for a trading debut on the Nasdaq. Despite the comments, the mystery around 55Tuan remains as thick as ever, and it’s still quite unclear if and when it will finally make its much-delayed listing.
All of these pre-holiday news bits involves decidedly second-tier Chinese companies that trade in New York or are planning to list there. These companies have become investor pariahs in the last few years, due to their relatively small size and unclear prospects for the future. Renren was once called the Facebook (Nasdaq: WB) of China, but has sunk into oblivion as it failed to live up to its hype and got overtaken by more aggressive rivals Sina Weibo (Nasdaq: WB) and Tencent’s (HKEx: 700) WeChat.
Renren’s stock has languished over the last few years as it sold off non-core businesses and its main SNS unit shriveled. Its largest asset at this point is its big cash pile, and now Renren is putting that asset to work with announcement of this Dutch auction. Renren said it will ultimately buy $50 million worth of its American Depositary Shares under the program, at a price of $2.40 to $2.75 per ADS. (company announcement)
That means investors who participate in the program can expect to get at least $2.45 for each of their ADSs, which is where the stock was trading before Renren announced the program. Renren shares jumped 8.6 percent to $2.66 after the announcement, indicating investors think it will pay more than the $2.45 minimum price. I’m not really sure what the excitement is about, though perhaps investors sense a bigger buy-out offer is near for this cash-rich company with no other future prospects.
Next let’s look at the 500.com news, which comes in relatively broad reports that Beijing will soon allow the resumption of online lottery ticket sales. (English article) 500.com’s shares plunged back in February after Beijing abruptly halted such sales to embark on one of its periodic sector clean-ups.
The stock rallied 18 percent on the latest reports that say sales will soon resume, though they are still down by about a third from their levels just before the February sell-off. That’s probably because investors are again realizing that 500.com is a company with very limited prospects, and I do expect its shares will continue to move steadily downward once this mini-rebound ends.
Finally there’s 55Tuan, which filed in January to make a $60 million IPO that would have made it China’s first group buying site to list. But several deadlines have now come and gone without an offering and no explanation from the company, which also goes by the name of Wowo.
Now media are citing a citing a company executive saying the deal was supposed to finally price on the evening of April 2 in New York, which would imply a Friday trading debut on April 3 on the Nasdaq. (Chinese article) The only problem is that April 3 is a holiday in the US for Good Friday. Perhaps 55Tuan will finally make its debut when the market reopens on April 6, though I certainly wouldn’t bet money on it.