Chinese social network beats Facebook in valuation

Renren Inc, China’s biggest social-networking website by page views, surged 29 per cent 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. The stock rose $4.01 to $18.01 as of 4 pm. 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 US company. Renren commands a premium because China’s economy may grow three times faster than the US and about two-thirds of the population isn’t online.

“Worldwide internet players that leverage social networks and monetise 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.”

SINA, TENCENT
Renren, which also offers games and daily deals for consumers, is the first social-networking site to go public in the US 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.

Sina, owner of China’s most-popular microblogging site, fell 2.8 per cent in US trading. Other US-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 US 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.

‘EXUBERANT TERRITORY’
Three Chinese Web companies announced IPO plans last month as Youku.com Inc, 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 aware that if the company doesn’t execute on these lofty expectations, they are in for a rude awakening.”