Renren Inc (RENN): Is This the Best Chinese Internet Play?

The competition

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) owns a global traffic rank of No. 5, unchanged over the past three months. It’s also the most visited website in China. Online traffic isn’t showing any signs of slowing. Over the past three months, page views-per-user increased 8.71%, and time-on-site grew 9%. Revenue and earnings have consistently improved on an annual basis, and the balance sheet is strong, with $5.39 billion in cash and $1.90 billion in long-term debt. You can think of Baidu.com, Inc. (ADR) (NASDAQ:BIDU) as the Chinese version of Google. However, the company’s fundamentals are so strong that many questions have arisen about accounting practices. To this point, any wrongdoing is nothing more than speculation, but these fears should be noted.

SINA Corp (NASDAQ:SINA) owns a global traffic rank of No. 3,612, up 132 spots over the past three months. You can think of Sina as the Chinese version of Yahoo. But SINA Corp (NASDAQ:SINA)’s real power engine is Weibo.com — the Chinese version of Twitter. Weibo.com has a global rank of No. 27, up two spots over the past three months. Keep in mind that the higher the ranking, the slower the move. Weibo.com has a ton of potential, but over the past three months, pageviews-per-user has declined 7.86%, and time-on-site has dropped 7%.

Sina’s revenue has consistently increased annually, but earnings have been inconsistent. Sina delivered a gain in 2012 after two years of losses, which is a positive sign. SINA Corp (NASDAQ:SINA)’s balance sheet also qualifies as excellent, with $687 million in cash and no-long term debt.

Conclusion

Renren Inc (NYSE:RENN) has shown that it’s capable of growth, and its potential would be good under normal circumstances, but downside risks for the Chinese economy are strong. If confidence wanes, advertisers and consumers will slow, thereby negatively impacting Renren’s business. The company’s inability to turn a consistent profit is also concerning. Overall, Renren Inc (NYSE:RENN) is a high risk/high reward investment, but at this point in time, downside risks look to outweigh potential rewards.

The article Is This the Best Chinese Internet Play? originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Baidu and SINA . The Motley Fool owns shares of Baidu. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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