Renren Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese social media company Renren (NYS: RENN) sank as low as 11% on Friday after quarterly results and guidance disappointed Wall Street.

So what: Renren has been investing heavily to deal with increasing competition, but its third-quarter results -- a loss of $1.2 million versus a year-ago profit of $7.3 million -- show just how costly the battle is becoming. Management is trying all it can to gain a competitive edge over social-networking sites like SINA (NAS: SINA) and Tencent Holdings, but given the stock's whopping 70%-plus year-to-date decline, it's clear that Wall Street remains highly skeptical.

Now what: Expect more short-term turbulence. Renren now sees fourth-quarter revenue of $31-$33 million, which is below the average Wall Street forecast of $35.7 million. Management did say that they will keep buying back shares under the opinion that they're "severely undervalued," but given the worrisome margin trend, I wouldn't be quick to follow their lead.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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