Now that RenRen has managed to convince investors that it’s worth three times the amount of Facebook, the real work begins: to live up to the kind of outsized expectations created by RenRen’s management and IPO underwriters.The nextfew quarters will hint at whether RenRen is a virtual folly or a budding Baidu. For now, we’re staying on the sidelines. Thus far, we believe demand for this IPO is rooted in the belief that China+Internet+SNS is some sort of modern-day formula for alchemy. The less glamorous reality is that RenRenoperates in a hypercompetitive environment and is on a collision course with much bigger companies, i.e. Tencent and Sina, that offer similar products with growing popularity.This is part of the reason for the considerable slowdown in RenRen’s recent growth.
We believe there is substantial risk that RenRen will not rekindle the kind of significant revenue growth required to justify such a stratospheric valuation.
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