Renren Inc., China’s biggest social- networking website by page views, surged 29 percent in New York Stock Exchange trading after raising $743.4 million in its initial public offering.
The Beijing-based company sold 53.1 million American depositary receipts at $14 each, the high end of the proposed range, according to a company statement yesterday. The stock rose $4.01 to $18.01 as of 4 p.m. yesterday. Including the sale of 7.97 million ADRs sold through an overallotment option with underwriters, Renren’s IPO raised $855 million.
At its $14 initial price, Renren would be valued at 72 times last year’s sales, compared with 25 times for social- networking site Facebook Inc. as valued by Goldman Sachs Group Inc.’s investment in the U.S. company. Renren commands a premium because China’s economy may grow three times faster than the U.S. and about two-thirds of the population isn’t online.
“Worldwide internet players that leverage social networks and monetize them well will have a very good chance at high growth and a chance to go public,” said David Chao, co-founder of the Menlo Park, California-based venture capital firm DCM, who says his fund has given Renren about $20 million. “This is a really good time for a lot of companies in China that have been growing very well because the overall market in China is growing very rapidly.”
Renren, which also offers games and daily deals for consumers, is the first social-networking site to go public in the U.S. and will use proceeds to expand in the world’s biggest Internet market by users. Renren faces competition for advertisers and users from local Internet companies Sina Corp. and Tencent Holdings Ltd. (TCEHY)
Sina, owner of China’s most-popular microblogging site, fell 2.8 percent in U.S. trading yesterday. Other U.S.-traded Chinese Internet stocks including Baidu Inc. and Sohu.com Inc. also declined.
The website operator is one of 34 companies that announced plans for U.S. IPOs in April, the busiest month for new filings since August 2007, according to Renaissance Capital LLC, the Greenwich, Connecticut-based IPO investment firm.
China had 457 million Internet users at the end of 2010 and about half of them used social-networking websites, according to data from the government-sponsored China Internet Network Information Center. Renren had 117 million users as of March 31, according to its prospectus.
At least three Chinese Internet companies announced IPO plans last month as Youku.com Inc. (YOKU), the Beijing-based online- video site, trades at more than 100 times 2010 sales following its December IPO.
“We’re at least in exuberant territory, if not a bubble, with Chinese Internet stocks,” said Michael Yoshikami, who oversees $1.1 billion as chief investment strategist at YCMNet Advisors in Walnut Creek, California. “Investors need to be very aware that if the company doesn’t execute on these lofty expectations, they are in for a rude awakening.”
Renren, whose name means “everyone” in Chinese, had 117 million users as of March 31, less than a quarter of the more than 500 million users Facebook has globally. The company boosted the maximum sought in its IPO by 27 percent on April 29.
Facebook, which is banned in China, said in January it had a market valuation of $50 billion after raising $1.5 billion from investors including Goldman Sachs and Russia’s Digital Sky Technologies. The Palo Alto, California-based company may have reached about $2 billion in revenue last year, three people with knowledge of the matter said in December.
Some Chinese Internet stocks may have “high valuation risks,” said Kai-Fu Lee, a former Google Inc. executive whose Beijing-based venture fund invests in startups, in an April 15 interview on Bloomberg Television.
China, which requires domestic websites to self-censor content deemed unacceptable to the ruling Communist Party, and blocks overseas services such as Facebook and Google Inc.’s Youtube, has set up a new department under the cabinet to supervise the Internet, the official Xinhua News Agency reported yesterday.
Besides its social network, Renren operates a group-buying site that offers daily deals on local services and cultural events, Nuomi.com, and an online games site. In 2006, Renren acquired Xiaonei.com, a social networking site founded by graduates of Beijing’s Tsinghua University in 2005. Renren, formerly known as Oak Pacific Interactive, began operations in 2002, according to the IPO prospectus.
“The world has never seen the kind of growth we’re seeing out of Internet companies in China,” said Lou Kerner, a social media analyst at Wedbush Securities Inc. in New York.
Softbank Corp. (9984), Japan’s fastest-growing mobile-phone carrier, is the biggest shareholder in Renren.
Morgan Stanley (MS), Deutsche Bank AG (DBK) and Credit Suisse Group AG (CSGN) led Renren’s offering.