What’s The Outlook For Renren’s Different Businesses In 2013?
Renren Inc (NYSE:RENN) operates the Chinese social networking service Renren.com, which is similar to Facebook in China. The company’s revenue growth was hit in Q2 2013 due to delays in its Android gaming pipeline and low mobile monetization.
We believe that online gaming and online advertising segments will continue to see slow sales growth during the remaining year due to various challenges. However, the recent stake sale in Nuomi will bolster Renren’s outlook as the business has been highly unprofitable and required significant investments. Moreover, we expect Renren’s profitability to be a cause of concern due to investments in mobile platform development, 56.com (its video vertical) and the online gaming segment.
| Segment | Revenue ($ thousands in 2012) | % Contribution In Overall Revenue (2012) |
Operating Margin (2012) |
| Nuomi – Group Buying Service |
16,451 |
9.3% |
– 166.1 % |
| Online Games |
90,175 |
51.2% |
– 40.3% (Renren segment) |
| Online Advertising |
53,508 |
30.4% |
|
| 56.com and other services |
15,952 |
9.1% |
Stake Sale In Nuomi Could Help Renren
- Renren Continued To Disappoint With Q3 Results
- Here Are The Key Challenges Impacting Renren
- Renren Earnings: Core Revenues Decline Amid New Forays
- Renren Earnings Preview: Impact of Faster Internet, Gaming Consoles In Focus
- Renren 2014 Review: Mobile Monetization, Downsizing In Focus
- Renren’s Three Most Important Investments In 2014
Recently, Baidu purchased 59% interest in Nuomi (a group buying site) for $160 million to augment its presence in the Chinese mobile Internet market. Renren had incurred huge losses due to massive investments in expanding Nuomi to different cities of China. We believe selling a stake in Nuomi will help Renren focus on its core businesses. Also, we expect Nuomi to aggressively expand into new cities of China to grow its market share. While this business might remain unprofitable in the near term, its profitability can improve in the long run with the ongoing consolidation in the group buying sector.
Outlook In The Online Advertising Market Looks Weak
Renren’s online advertising revenue grew by just 4.7% and 2.4% during the first two quarters of 2013. The slow revenue growth was mainly attributable to intense competition and low mobile monetization. While the company will begin selling mobile advertising at the end of the third quarter, we think that this segment will continue to be impacted by the aforementioned challenges throughout the second half of 2013.
Delay In Gaming Pipeline Hurting Online Gaming Revenue Growth
Revenue growth in the online gaming segment slowed down significantly in Q2 2013 as some older games reached their maturity and launch of new Android games were delayed. Although Renren expects to launch these games starting late in the third quarter, the sales growth might remain weak in the next two quarters as it will be a while before new games gain popularity.
Renren is also promoting ‘Ader’, a mobile gaming advertising exchange network, to market its own games and allow other companies to advertise on this platform. We believe that the company will continue to expand this platform by entering the Android market and leveraging data analytics capabilities.
Other IVAS Revenues Could Continue To See High Growth
Other Internet value added services (IVAS) revenue (which includes 56.com and jingwei.com, a professional social network) rose by 80.4% and 43.5% in Q1 and Q2 2013, respectively. With increasing popularity of Woxiu, a virtual talent show service on 56.com, the segment’s revenue growth can sustain its momentum in the near future.
Our $3.13 price estimate for Renren, represents near 10% downside to the current market price.
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