Last night's quarterly results were mixed. Revenue climbed 57% to $32.8 million. Renren's profit of $48.2 million should jump out like a phony dollar bill, and rightfully so. The sale of Renren's stake in travel website operator eLong (NAS: LONG) padded results. The operating loss at China's leading social networking website operator actually widened, disappointing analysts that were expecting a small profit.
The red ink will continue. Renren is making it clear that it will be investing heavily in the near term to grow its business and keep it on top. It is targeting revenue to climb an impressive 50% to 55% this year, though the 36% to 46% that it's projecting for the current quarter is short of where the pros were perched.
Thankfully we're not where we were back in May. When Renren went public at $14, its roughly 400 million ADS outstanding gave it a market cap of $5.6 billion. Retail investors bid up the stock to a valuation of nearly $10 billion during its opening day, unaware of the unjustifiable valuation that they were inflating.
Renren's stock now trades for a little more than a third of its IPO price, and even some may argue that a $2 billion valuation is still out of whack for a small company that Wall Street believes won't be profitable on an annual basis for another two years.
There's excitement leading up to Facebook's upcoming IPO, but jumping into any smaller social networking rival is dangerous. Renren and social discovery player Quepasa (ASE: QPSA) scored huge gains when Facebook filed last month, but wait for those companies to earn the upticks. Quepasa and Renren aren't profitable the way Facebook is, and obviously they're nowhere near as ubiquitous.
The more established LinkedIn (NAS: LNKD) has been profitable for a few quarters now, but even the career-oriented social networking hub needs to be evaluated on its own merits.
If the Chinese government ultimately lets social networking websites exist in usable form, Renren will be a winner. In time, it will be worth even more than today's $2 billion price tag. However, patience is more than a virtue here. It's mandatory.
Quepasa and Renren have some -- but not enough -- of the growth traits that stand out to members of the Rule Breakers newsletter. The growth stock service has identified a new rule-breaking multibagger that's an active recommendation. Learn more in a free special report. Check it out now.
At the time thisarticle was published The Motley Fool owns shares of LinkedIn.Motley Fool newsletter serviceshave recommended buying shares of LinkedIn. 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 contributor Rick Munarriz calls 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.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.