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Renren Aims to Raise USD 583 Mln in IPO

SEC, 4/15/11

According to its IPO prospectus, Beijing-based social networking site operator Renren Inc., formerly Oak Pacific Interactive, plans to raise up to USD 582.7 mln from its NYSE IPO and concurrent private offering.

Renren plans to issue 53.1 mln American Depositary Shares (ADSs), each representing 3 class A ordinary shares, on the New York Stock Exchange under the ticker symbol RENN. Renren anticipates the IPO price will be between USD 9-11 per ADS. The IPO is being underwritten by Deutsche Bank, Morgan Stanley, Credit Suisse, BofA Merrill Lynch, Jefferies, Pacific Crest Securities, and Oppenheimer & Co.

Concurrently with, and subject to, the completion of this offering, a group of third-party investors consisting of entities affiliated with Alibaba Group, China Media Capital and CITIC Securities, respectively, all of which are non-US entities, have agreed to purchase, severally but not jointly, an aggregate of USD 110 mln in Class A ordinary shares at a price per share equal to the initial public offering price adjusted to reflect the ADS-to-ordinary share ratio. Assuming an initial offering price of USD 10.00 per ADS, the midpoint of the estimated initial public offering price range, these investors will purchase a total of 33 mln Class A ordinary shares.

Renren expects to receive net proceeds of approximately USD 507.9 mln from this offering and the concurrent private placement, or USD 582.7 mln if the underwriters exercise in full their over-allotment option to purchase additional ADSs, after deducting underwriting discounts and commissions and estimated offering expenses payable by Renren, assuming an initial public offering price of USD 10.00 per ADS, the midpoint of the estimated initial public offering price. Renren intends to use the net proceeds from this offering and the concurrent private placements as follows: (i) approximately USD 180 mln for investing in technology and R&D activities; (ii) approximately USD 180 mln for expanding sales and marketing activities; and (iii) the balance for other general corporate purposes, including potential strategic acquisitions and investments.

According to the prospectus, Renren's total net revenues increased from USD 13.8 mln in 2008 to USD 46.7 mln in 2009 and to USD 76.5 mln in 2010, representing a compound annual growth rate of 135.7% from 2008 to 2010.

Renren had net income from continuing operations of USD 51.9 mln in 2008, a net loss from continuing operations of USD 68.3 mln in 2009, and a net loss from continuing operations of USD 61.2 mln in 2010.

Renren currently generates revenues from online advertising and IVAS.

Online advertising revenues accounted for 49.2%, 39.4% and 41.8% of total net revenues in 2008, 2009 and 2010, respectively, and IVAS revenues accounted for 50.8%, 60.6% and 58.2% of total net revenues in 2008, 2009 and 2010, respectively. Renren offers a wide range of online advertising formats and solutions, including display advertising, social advertisements, promoted news feed items, fan/brand pages, in-game advertising, a recently launched self-service advertising solution targeted at small and medium-sized enterprises, branded virtual gifts and other formats such as sponsored online events.

In 2008, 2009 and 2010, the number of advertisers on Renren was 139, 224 and 248, respectively, and the average annual spending by advertisers was approximately USD 49,000, USD 82,000 and USD 129,000, respectively.

IVAS revenues are comprised of online games revenues and other IVAS revenues. The substantial majority of IVAS revenues are derived from online games, and the substantial majority of online games revenues are generated from users' purchases of in-game virtual items offered on game.renren.com. Other IVAS revenues include revenues earned from merchants who offer services and products on group buy site Nuomi.com, paid applications on the Renren Open Platform program, and VIP memberships.

In late 2008, due to regulatory changes to the operating environment of wireless value-added services, or WVAS, Renren decided to exit the WVAS business. Renren discontinued the majority of its WVAS business in 2009 and the remainder in 2010, receiving in aggregate approximately USD 0.8 mln in proceeds from the sale of its WVAS business to unrelated third parties in 2009.

As of December 31, 2008, December 31, 2009 and December 31, 2010, the cumulative total of Renren's activated users was approximately 33 mln, 83 mln and 110 mln, respectively. As of March 31, 2011, Renren had approximately 117 mln activated users. From January 2011 through March 2011, the site added an average of approximately two mln new activated users per month. "Activated users" refers to the number of user accounts on Renren.com that have been registered and activated. In Renren's most common registration and activation process, users must first register by entering their email address and other information, and then "activate" by clicking an activation link in an email automatically sent to the user's email address. Not all registered users activate the accounts they register.

In December 2008, December 2009 and December 2010, the number of monthly unique log-in users was approximately 17 mln, 22 mln and 24 mln, respectively. In March 2011, Renren had approximately 31 mln monthly unique log-in users. As of March 31, 2011, approximately 2.9 bln photos, 249 mln blogs and 20.8 bln comments or reviews were available on Renren's platform.

The number of unique mobile log-in users as a percentage of total unique log-in users increased from 23.0% in March 2010 to 30.0% in March 2011, and the number of monthly unique smartphone users who accessed Renren's mobile applications was approximately 0.5 mln, 1.4 mln and 3.1 mln in September 2010, December 2010 and March 2011, respectively.

Since Renren launched the Renren Open Platform program in late 2008, it has received over 100,000 application submissions from third parties, and approved over 1,000 of these applications. Some of the most popular applications on the Renren Open Platform program include social games, such as Little War and Building One, as well as non-game applications, the most popular of which typically relate to lifestyle topics, daily horoscopes and personality tests.

As of September 30, 2010, December 31, 2010 and March 31, 2011, the aggregate number of Nuomi's paying users was approximately 520,000, 700,000 and 1,342,000, respectively, and the number of total units sold by the group buy site was approximately 0.8 mln, 2.1 mln and 4.7 mln, respectively.

Oak Pacific Interactive changed its corporate name to Renren Inc. in December 2010, when the company transferred its non-SNS businesses - specifically online community site Mop.com and Japan-based social game platform Gummy Inc. - to Oak Pacific Holdings, which is owned by some of Renren Inc.'s shareholders, including CEO Joseph Chen and COO James Jian Liu, for approximately USD 18.1 mln.

To view Renren's full IPO prospectus, please click here.

Keywords: financing James Jian Liu Internet IPO Joe Chen NYSE online advertising in-game advertising virtual items WVAS SNS IVAS Oak Pacific registered users Renren social game Nuomi open platform e-commerce profit online gaming group buying revenue

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