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China's Social Network IPO

Written By Brian Hicks

Posted May 5, 2011

Where were you when you heard Osama had been killed?

Better yet, how’d you hear about it?

On television? In the newspaper? Or by reading it on your favorite social networking site an hour before President Obama’s official address, as hundreds of millions of people did?

Whether you have a Twitter account or can’t be bothered, the reality is the playing field has shifted…

Television networks can’t keep up with the flow of the news. Daily newspapers can’t print the stories fast enough.

Social networking is picking up their slack.

It was only a matter of time before this happened.

Social networking has taken over the world: the way we share and access information, the way we socialize and stay in touch, the way we network professionally, the way we work.

And that trend isn’t likely to change any time soon.

Heck, more than a half billion U.S. Facebook users can attest to that. 

And advertisers are finally waking up to it, too — increasing their spending on social networking by some 10% over the next year. As they say in the advertising industry, “Follow the consumers’ eyes.”

Investors “Like” This

So how do you make money from this explosive trend?

You buy into social networking stocks that operate in areas where social networking is in its infancy — places like China, where Facebook is banned for a whole host of reasons. 

Why do you think shares of RenRen (RENN) soared some 50% on its debut?

Try as they might to keep the Facebook way of life from sweeping the Middle Kingdom, the Chinese government can’t keep a lid on demand… Not when 500 million Internet users in China use some form of social network every single day.

And RenRen (RENN) is further proof of this, as the mere mention of China, the Internet, and a social networking IPO has investors scrambling for shares, brushing aside concerns of internal financial controls, the Chairman’s resignation, and tight control and censorship issues with the Chinese government. 

Demand is out of control as investors try to get their hands on anything social media-related.

And the company’s CEO is telling investors they won’t have to wait too long for Renren to post a profit, as the stock surged 50% on debut.

With more than a billion Chinese Internet users, 500 million of them use social networking sites every day, many at the country’s more than 130,000 registered cyber cafes.

Also consider the fact that two-thirds of the population are not yet online…

chinese internet population

In 2009, 155 million people in China were using social networks at least once a month. Today, that number is up to 265 million.

By 2015, it’s estimated 488 million Internet users in China will access social networking sites.

The company already had to raise its IPO price range by some 30% due to strengthening demand, and the stock could easily rival the robust stock prices of other Chinese Internet companies like Baidu (BIDU) and (YOKU).

Growth continues to surge.

In 2010, revenue was up 64% to $76.5 million after more than doubling in 2009. And we really see no reason for a drop-off; more than 30 million people used the social networking site during the month of March alone.

We’d definitely buy RenRen at IPO. You might also look to buy Baidu, as well as the U.S. IPOX-100 Index (FPX), which measures the average performance of U.S. IPOs for their first 1,000 trading days.

fpx chart 050411

Facebook is rumored to be striking a deal with Baidu to start a social networking site in China.

But since approval for something like this would first need Chinese government approval — which takes quite a while to get the near-term threat to a company like RenRen is practically non-existent.

Stay Ahead of the Herd,

Ian L. Cooper
Editor, Wealth Daily