Renren Buy-Back: Does Anyone Care? 人人回购股票：有人关心吗？
Beleaguered social networking site (SNS) Renren (NYSE: RENN) is resorting to the feeble tactic of buying back its shares to boost its anemic stock, even as it faces little or no prospect of major new growth in the current chilly advertising climate. What the company really needs right now is a major jolt to excite investors, perhaps through a privatization or a mega-merger with leading rival Kaixin. Both of those could be possibilities in the new year, with the merger option as the most exciting that could breathe new life into a company that was once considered the Facebook (Nasdaq: FB) of China.
Like the real Facebook, Renren has discovered in its year and a half as a listed company that creating buzz is much easier than maintaining that buzz, especially as China’s advertising business enters a sharp slowdown. Let’s have a look at this loss-making company’s latest announcement, which will see Renren continue a share buyback program begun a year ago. (company announcement)
The plan allows the company to purchase another $48 million worth of its stock over the next year, following its purchase of about $100 million over the past year. Based on its current market capitalization, the $150 million Renren allotted to the original share buyback program would buy around 12 percent of its stock at current prices. Clearly the company is becoming one of the biggest owners of its own stock, since few if any other investors seem too excited about Renren shares these days.
Renren shares rallied 2.4 percent after the announcement came out, though they gave back much of the gains in after hours trade. From a longer term perspective, the company’s stock has performed quite miserably. The shares have moved steadily downward since its IPO in May 2011, following a race with Kaixin to become China’s first publicly listed SNS.
Renren sold its American Depositary Shares (ADS) in that offering for $14, and watched them soar as high as nearly $22 in their trading debut as many salivated over the prospects of buying into the Facebook of China. Fast forward a year and a half to December 26, 2012, when the shares closed at $3.39, having lost three-quarters of their value from their original IPO price.
Frankly speaking, I don’t see any big rebound for the company’s share price anytime soon for a number of reasons. Most importantly, both Renren and Kaixin are both rapidly being overtaken by the more nimble and popular Sina (Nasdaq: SINA) and Tencent (HKEx: 700), whose Weibo and WeChat services increasingly offer many of the same SNS functions. Sina and especially Tencent are also both pushing aggressively into mobile SNS, which is likely to be the future choice of Chinese consumers who like to access such services over their mobile phones.
Renren is also heavily dependent on advertising revenue, and its status as a second-tier brand means it is getting hit especially hard by an advertising downturn affecting the entire industry. Earlier this week I discussed another second-tier player, Phoenix New Media (NYSE: FENG), which is also struggling through the current downturn. (previous post)
What Renren really needs right now is a big shot in the arm, which it could get through a merger with another big player like Kaixin. An actual Kaixin tie-up could be difficult due to ownership issues, but perhaps Renren could find another partner next year to reverse its slide. If it doesn’t look for its share price to stagnate or even slide further and its losses to build in 2013, as the company slips further into irrelevance.
Bottom line: Renren’s shares will continue to stagnate in 2013 unless it finds a strategic partner to help it better compete against other more popular social networking sites.
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