Analysts point to lack of cash and poor decisions by management

Renren Inc was touted as the Facebook Inc of China when it debuted in New York in 2011. Today it is looking more like online flameout Myspace.

The stock has lost more than three - quarters of its value since 2011 and will drop about 18 percent over the next 12 months to $2.74, according to the average estimate of analysts surveyed by Bloomberg - the most bearish forecast among companies in a Bloomberg index of Chinese stocks traded in the US.

Renren is struggling to diversify its business and boost profit as sales slide, even in a country with 632 million Internet users. The company forecast in August a plunge of as much as 54 percent in third-quarter revenue to $19 million, the smallest amount since at least 2011.

While Renren was one of China's first social media websites, it has been eclipsed by rivals including Tencent Holdings Ltd's WeChat and Weibo Corp, backed by Alibaba Group Holding Ltd, which have been faster to adapt to the rapidly changing social media industry.

"Renren was the first social media platform to go public and was expected to expand and grow, but failed to do so," said Cyrus Mewawalla, a managing director at CM Research in London.

"When a new messaging app like WeChat arrives, you have to come up with your own messaging app; when shopping goes mobile, you have to catch that trend.

"It's not giving enough variety of services to keep customers, and therefore the bigger ecosystems are going to eat its lunch."

Renren's Chief Executive Officer Joseph Chen said in August that its management team is addressing the erosion of its business model by pursuing a strategy that focuses on a younger audience in China.

The company posted its first quarterly profit in the three months ended June 30 after nine straight losses. On a conference call with investors, the company said it will diversify its offerings to include online financial business which will provide loans to students, Renren's core users.

Cynthia Liu, a spokeswoman for the Beijing-based company, declined to comment on the analysts' outlook on the stock and the company's business model. But Francis Gaskins, research director at financial media site Equities.com, said last week that a sale of the company is now looking likely.

When Renren went public in May 2011, Gaskins was one of those who had high expectations for the stock. At $14 a share, Renren was valued at 72 times annual sales, more than twice the multiple on Facebook at the time of its 2012 IPO.

Renren's market capitalization has dropped by about $5.7 billion since then as the stock lost 76 percent.

Renren's shares gained 0.3 percent to $3.36 on Tuesday while the Bloomberg-China Equity Index of the most-traded Chinese companies in New York rose 3.1 percent.

Amanda Dingyuan Hou, a Chinese freelance video producer in New York who switched from Myspace to Facebook and from Renren to Tencent's WeChat, thinks the change in social media preferences has been about more useful services and more relevant content.

"When Renren appeared, students like me added as many friends as possible, but you get tired scrolling through horoscopes and advertisements searching for original content, because WeChat looked like a more enticing platform for posting news and reading comments," Hou said.

"It was the same with Myspace: You log in, you scroll through your newsfeed, only to find out that all the interesting conversations are happening on Facebook."

Three years after its IPO, Renren's valuation has fallen to less than eight times sales.

The 24-year-old Hou still checks her Renren account about three times a week, though for WeChat "it's every hour".

Monthly unique users decreased to about 44 million as of June, Renren said in a statement in August. That compares with more than 438 million monthly active users for WeChat.

"Renren could try to turn around, but for that you would need strong management, a precise plan and financial resources," said Henry Guo, a San Francisco-based analyst at JG Capital.

"I don't know where it can get the money, and there are no strong management decisions in sight."

The logo of Renren Inc at an exposition in Beijing. Renren was one of China's first social media websites, but it has been eclipsed by rivals including Tencent Holdings Ltd's WeChat and Weibo Corp, backed by Alibaba Group Holding Ltd. Provided to China Daily

(China Daily USA 10/30/2014 page16)