Is Renren Going Anywhere?

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The trend towards mobile is developing globally, but Chinese social network companies are facing strong competition while going mobile. Renren (NYSE: RENN), one of the largest operator of real name social networking in China, continues to adapt to the rapidly changing social network and mobile market. Renren continues to leverage its attractive demographics, open platforms and high user engagement levels, as well as its real name user base, to differentiate itself from competitors.

A better first quarter amid tough competition

Renren delivered a solid first quarter with revenue of $46.6 million, which was above top line guidance. Gaming continues to be the main growth driver while the social networking service expanded its user base to 184 million, up 19% compared to the previous year. However, the competition remains intense for Renren’s Nuomi, the group buying segment, which improved but still contributed $6.9 million loss in the first quarter. Management is expecting more short-term losses for Nuomi but remains positive on its long-term prospects. Advertising revenue also suffered due to stronger competition as the shift to mobile continues.

What is Renren doing?

Renren believes communication is the main and the most intuitive service for mobile handsets. In essence, mobile has made users more communication-oriented while users remain more social and content sharing-focused on PC. Renren mobile will shift more toward a social messaging service with the social sharing elements and will be more communication focused. As for the gaming market, Renren’s top priority is to become a market leader in the Android market. Overall, Renren is channeling more resources into Renren social network service mobile, Nuomi mobile, and the gaming mobile initiatives to leverage its established user base and brand.

Fast changing landscape and stronger rivals

The mobile revolution is fast and unavoidable. Renren, along with other players in the field, are facing an industry-wide transition, where great opportunities come with large uncertainties.

Tencent's (NASDAQOTH: TCEHY.PK) WeChat is one of Renren's largest competitors as the company expands into mobile. Tencent, with a market cap of over $70 billion, holds a total cash of $4.86 billion and generated over $3.4 billion of operating cash flow in the last 12 months. With its successful QQ, an Internet-based instant messaging platform, and high Internet traffic, Tencent is trying to establish a leadership position for WeChat, which has acquired over 300 million users since January 2011. A tough road is ahead for Renren if it continues to compete with Tencent as Renren is still operating at a loss with fewer financial resources.

Besides WeChat, Renren is also facing strong competition from SINA's (NASDAQ: SINA) Weibo. Alibaba acquired an 18% stake in SINA’s Weibo, and the two are now trying to create a new ecosystem to boost traffic and enhance monetization. Renren is not only facing the problem of shifting toward mobile, but also finding ways to monetize mobile.

Bottom line

There are still uncertainties on how Renren can compete with Tencent’s WeChat and SINA’s Weibo in the mobile arena. To make it worse, Renren’s Nuomi is still operating at a loss and its advertisement segment continues to struggle. In short, more patience is required for Renren investors.

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Nick Chiu has no position in any stocks mentioned. The Motley Fool recommends SINA . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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