Renren’s (人人網) successful initial public offering (IPO) could be the curtain raiser for what is to come if the world’s No. 1 social networking site, Facebook, goes public next year.
Shares of Renren Inc, one of the biggest social networking companies in China, surged 28.6 percent on their debut on Wednesday.
Strong demand for the unprofitable company — which will make money “very soon,” according to chief executive Joseph Chen (陳一舟) — is the latest sign investors are eager to snap up stock in social media companies.
The stock rose as high as US$21.93, or almost 56.6 percent above its US$14 IPO price, in its first day of trading on the New York Stock Exchange, before closing at US$18.01. Earlier on Wednesday, Renren raised US$743.4 million in its IPO.
Renren’s offering comes amid a grab for hot social media companies, including Twitter, Facebook, Groupon and Zynga, which are propped up by multibillion-dollar valuations of their shares trading on the secondary markets.
“There is no doubt this just adds to the allure to a potential Facebook IPO,” Morningstar IPO strategist Bill Buhr said.
Facebook has a market value of about US$70 billion, based on a share sale currently being contemplated, making it worth more than companies such as Boeing Co.
Renren shares are trading at slightly more than 80 times annualized sales for the six months ended Dec. 31, IPOdesktop.com president Francis Gaskins estimated.
That’s well above Facebook, valued at 35 times last year’s sales in gray market trading.
“If you like Renren, you’ll love Facebook,” Gaskins said.
High valuations for other social networking companies, combined with the fact China is the world’s biggest Internet market, were expected to help Renren attract investors.
On Tuesday night, in anticipation of Renren’s IPO, Chinese Internet stocks, including search engine Baidu Inc (百度) and online media company SINA Corp (新浪), traded off in heavy volume.
Renren’s IPO gave it a market value of US$5.7 billion, according to an underwriter. It closed out its first day of trading with a market value of US$7.4 billion.
“[Renren] is basically Facebook with a few fleas,” Buhr said.
Renren had net revenue of US$76.5 million last year and about 117 million activated users as of March 31. It had about 31 million monthly unique log-in users in March.
Beijing-based Renren sold 53.1 million American depositary receipts for US$14 each on Wednesday. It had planned to go public for US$12 to US$14 per share after raising its estimated price range by 30 percent last week from US$9 to US$11.