If you think that Facebook (NAS: FB) is being challenged to grow its advertising revenue as users switch to mobile access, check out what's happening in China.
Despite a 31% increase in monthly unique log-ins, Renren (NYS: RENN) somehow saw its online advertising revenue shrink 11% over the past year. It too is blaming the growing popularity of smartphones, for which display advertising isn't as effective as the results the site experienced on desktop browsers.
China's leading social networking website was bailed out by its in-house game development. It was a 122% spike in online gaming -- now accounting for a little more than half of Renren's total revenue -- that resulted in an overall 48% top-line advance to $44.8 million during its second quarter. That may have been better than what Wall Street was targeting, but Renren's widening deficit of $0.06 a share was worse than the $0.04-a-share loss that analysts were forecasting.
It doesn't help that Renren's operating expenses more than doubled as it ramped up its game development and spent far more than it took in with its group-buying website Nuomi.
China may offer investors a unique opportunity to buy into the Internet migration process at an earlier and more lucrative stage than where we're at closer to home, but many of the country's dot-com darlings, including Renren, Sohu.com (NAS: SOHU) , and Weibo parent SINA (NAS: SINA) , are seeing their margins get crushed as they expand into cost-intensive areas.
It also isn't helping Renren that Facebook's busted IPO is turning investors off to social networking websites in general. Renren and Quepasa parent MeetMe (NYS: MEET) soared as sympathy plays in the months leading up to Facebook's IPO, but investors abandoned the international social networks when Facebook wasn't as scintillating as many figured it would be when it went public in May.
Renren's guidance also isn't going to win it new friend requests. It may have bested the market's revenue target for the second quarter, but the $49 million to $51 million that it's eyeing for the current period is short of the $52.2 million that analysts are projecting.
Renren has been a busted IPO since shortly after going public last year. Until it learns how to dish out welcome surprises, resume its display advertising growth, and start clawing its way back to profitability, Renren's going to stay busted, too.
The article Renren Plays Its Way to Growth originally appeared on Fool.com.
The Motley Fool owns shares of Facebook.Motley Fool newsletter serviceshave recommended buying shares of Sohu.com, SINA, and Facebook. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.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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