Renren Rolls the Videotape

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Renren's (NYS: RENN) ready for its close-up.

The Chinese social networking site is buying video-sharing site 56.com. The hub of user-generated content isn't as popular as the recently public Youku.com (NYS: YOKU) or Tudou (NAS: TUDO) , but it also comes at a more palatable price tag. Renren will be paying $80 million for 56.com in the all-cash deal.

This is a brilliant move on Renren's part. The real-name network has 124.2 million users. Even if only a quarter of those registrations are active on the site, that's a lot of people that it can funnel toward 56.com for their video-sharing needs. In other words, it's a great way for Renren to increase the traffic to a site that it's buying.

You don't often see "brilliant" and "Renren" in the same sentence, but that's because the stock went public at a ridiculous valuation. Going public at $14 with a whopping 400 million ADS outstanding four months ago tagged the stock with an unjustifiable $5.6 billion market cap.

Renren's good and growing, but not that good.

Revenue climbed 53% to just $30.4 million in its latest quarter, and adjusted earnings fell to a mere $2.3 million.

Valuation concerns and the same ownership structure concerns that have dogged dot-com darlings SINA (NAS: SINA) and Baidu (NAS: BIDU) in recent weeks have taken Renren's stock down to less than half of its May IPO price.

Has Renren finally bottomed out? I have been rightfully bearish on the way down, but this morning I went ahead and gave this falling steak knife a thumbs-up rating on the Motley Fool CAPS rating platform. I'm not entirely comfortable with the $2 billion market cap, but this isn't the kind of story stock -- China's Facebook -- that investors may ever get at a discount.

The 56.com purchase is brilliant in every way, and hopefully it will be just the beginning of Renren's publicly traded turnaround.

AddRenrento My Watchlist to get the latest news updates on China's leading social networking site as they happen.

At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of SINA and Baidu. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributorRick Munarrizcalls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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