Why Renren Shares Popped


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 Renren (NAS: RENN) , often referred to as the Facebook of China, shot up nearly 13% this morning after reporting first-quarter earnings results.

So what: It was actually a very mixed quarter for the social networking company. In the first quarter, Renren reported a 56% rise in sales to $32.1 million and a loss of $0.03 per share. This was mildly better than Wall Street's expectations for a loss of $0.04 on sales of $29.7 million. Overall, online ad revenue rose by 15% while gaming revenue spiked 91%. However, Renren's second-quarter guidance wasn't up to par and slowing online ad revenue spending in China pre-empted the company to issue a revenue range of $41 million-$43 million -- well below the consensus estimate of $45.9 million.

Now what: Here we go with more of the same from Renren. Subtlety left out of the above results is that total expenses rose by 90%, squashing any sales gains and the hope of the company turning a profit. Renren seems quite content with growing at the expense of a profit at the moment. The only problem with that strategy is that China's economy is slowing and isn't going to be conducive to the growth rates the company has become accustomed to. I continue to remain pessimistic on Renren's near-term outlook and feel there are plenty of better opportunities for your money out there.

Craving more input? Start by adding Renren to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.