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Social Media Has Real World Value

by Lori Taylor · 0 comments

social mediaEver heard of Renren? If you live outside China you likely have not. It is the Chinese equivalent of the social networking giant Facebook. With a population of more than one billion people China can have its own, anything, so why not a social media behemoth? So far Renren has about 117 million users, less than a quarter of the users who are on Facebook, but less than a third of the people who could be online in China are online, meaning its growth potential is enormous. That might be why the owners are valuing their stock at twice the price expected for Facebook shares. They are hoping to raise more than $700 million during an initial public offering today and expect the value to only go up.

But doesn’t everyone expect their own stock to go up?

Renren is hardly the only social media network in China. Granted it is the most popular at the moment, but as we saw with Friendster nothing last foreever. Sure, not very long ago MySpace was number one, booting Friendster down the ladder. Now Friendster is gone for good and MySpace seems to be on the precipice of the abyss. Who is to say Renren won’t be replaced by Meimei in a year or two? Then what will it be worth?

 

Renren is demanding a premium, with China’s economy projected to grow three times faster than the U.S. and about two-thirds of the population not yet online. The company, which also offers games and daily deals for consumers, plans to use the proceeds from the IPO to expand as it faces competition for advertisers and users from local Internet companies Sina Corp. and Tencent Holdings Ltd. (TCEHY)

“You can say it’s overvalued, but people are going to buy it anyway,” said Darren Fabric, a Chicago-based managing director at IPOX Capital Management LLC, which oversees about $2.5 billion and invests in IPOs. “The growth is there, and you’re paying for it big-time.”

Renren and at least 17 other companies worldwide are attempting to raise at least $2.5 billion in IPOs this week, according to data compiled by Bloomberg. In the U.S., April had the most new filings for initial offerings since August 2007, Renaissance Capital LLC, based in Greenwich, Connecticut, said last week.

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Lori Taylor

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