Renren Continues to Struggle in Facebook Undertow (RENN)

For the third consecutive day, shares of Renren (NYSE: RENN), a Chinese version of Facebook (NASDAQ: FB), lost ground on Tuesday in concert with Facebook’s high-profile decline. The less-than-enthusiastic reception that greeted the Facebook IPO weighed heavily on Renren. The stock has dropped from a high of $6.43 on May 17 to a Tuesday closing price of $4.70. Waking up Tuesday morning, holders of the Chinese social media company must have felt like they were in a rowboat tied to the Titanic in the wee hours of April 15, 1912. Renren looked like it had cut the line from Facebook for most of the day. The Chinese social media stock held gains throughout the trading session until succumbing to selling pressure with less than an hour left. It ended the day down four cents while Facebook closed seven dollars below its IPO price.

Adding fuel to the fire, The Motley Fool had an article on Monday about the Facebook IPO debacle and the idea proposed by some about a Chinese Internet stock bubble. The Fool mentioned Renren as one of the casualties.

Renren investors have experienced some heart stopping drops since the shares first appeared a year ago when it traded as high as $24 on the opening day of trading. The stock hit a low of $3.21 five months ago. One reason cited for the falling stock price is the growing competition in the Chinese social media space.

One week ago, investors appeared to get some welcome news as the company reported earnings that beat analyst expectations. Renren shares rallied eleven percent on the news. Optimism, however, waned as concerns surfaced over the make-up of quarterly revenues. Most of the improvement came from gaming rather than advertising, which sent out red flags over the reliability of future revenues.

In March, Seeking Alpha highlighted stocks for the aggressive investor. Renren made the list. The recommendation revolved around more of what the company could offer to a potential suitor instead of future growth. Facebook was mentioned as a possible interested party. Talk of a possible Facebook alliance or other partnerships helped stabilize Renren shares this spring. The stock trekked higher nearly doubling in price from the December lows before retreating the last couple of weeks.

The dramatic fall in Facebook shares coupled with declines in other social networking companies may cause investors to rethink the buyout scenario. For now it appears Renren is caught up in a whirlpool of doubts over the future growth of social networking in the United States and China.

Investors in Renren must wonder if the last three days mark the end of a gut-wrenching ride to the bottom or just a continuation of a wild ride headed for the falls. For better or worse, it appears the immediate fate of Renren shareholders rests with investor sentiment toward Facebook. The last few days show little reason for optimism.

But you never know what tomorrow will bring.

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Published by Donna Fago

I believe in writing content Informing investors with the knowledge they need to invest better today- I have been following the markets for many years and was asked to join the team at recently due to my passion for the markets.