Chinese Social Network RenRen Seeks Big IPO

RenRen, the "Facebook of China," is seeking an IPO that could place the company's market value at $5.1 billion.

The company makes its IPO today, and will aim to raise up to $743.4 million, according to Bloomberg, an increase from the $584 million originally planned. RenRen will offer 53.1 million depository receipts for $12 to $14 each.

The RenRen IPO hits two tech sweet spots: China and social networking. Two-thirds of the Chinese population is not online, but there are still over 450 million users. What's more, RenRen would be the first major social networking site to go public in an investment environment hungry to get in on the trend. RenRen also operates a daily deals site called Nuomi, and an online games site.

The proceedings hit a pothole when the head of the IPO committee at RenRen, Derek Palaschuk, resigned over allegations of accounting fraud at Longtop Financial Technologies Ltd.

"Even though all of the allegations are without substance it is definitely better for (Renren) that I resign from the board with immediate effect so that there is no unwarranted attention brought to Renren or yourselves," Palaschuk wrote in an email to RenRen CEO Joseph Chen.

Both TechCrunch and the Financial Times, have pointed out some notable red flags in RenRen's offering. Despite being dubbed "The Facebook of China," RenRen is notably different from Mark Zuckerberg's social network. The Chinese site had 117 million users at recent count, while Facebook's 500 million global users is five times that.

“We’re at least in exuberant territory, if not a bubble, with Chinese Internet stocks,” Michael Yoshikami, an investment strategist, told Bloomberg. “Investors need to be very aware that if the company doesn’t execute on these lofty expectations, they are in for a rude awakening.”

Before its offering, RenRen changed certain key numbers after being questioned about its huge user base growth rate. It had initially stated it had added 7 million users in the first quarter, bringing it to 31 million monthly users, a user jump that had taken RenRen two years to add previously. It has since amended its filing to say 5 million users were added in the first quarter and 2 million in the fourth, bringing growth rate down significantly to 19 percent from 29 percent. The company later said these errors were typos.

While RenRen is the first of the Chinese social networking sites to go public, it doesn't have the same kind of commanding dominance over the market that Facebook does. Competitors include the Facebook-like Kaixin, which may itself be preparing an IPO soon, as well as Tencent, which serves around 80 percent of Chinese Internet users. Another site, Baidu, is said to be working with Facebook to launch its own social networking service.

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