Why Renren is NOT “The Facebook of China”

Renren is preparing for an IPO today at a $4+ billion dollar valuation. We can also prepare for a billion articles selling Renren as “The Facebook of China.” Here’s why that’s NOT true.

1) Facebook is dominant, Renren is NOT

Facebook is stunningly dominant, a single network that spans demographics, generations, and geographies. Literally everyone I know in the US is on Facebook, most of them daily. Both my parents have been on Facebook for years. My 89-year old German grandmother recently asked me to help her set up an account, because she’d been hearing about Facebook so much in the news. That could lead to its own set of problems down the road (e.g, “Should I friend my boss?” or “I Facebooked your mom”), but for now Facebook is the social layer.

Renren is nowhere close. It’s one of many players in a crowded, competitive social landscape. It faces entrenched incumbents any which way it tries to move from its core student demographic. If “down” to high school students or rural users, it faces Pengyou, Qzone, and 51.com. If “up” to urban white-collars, I used to think Renren could feast on Kaixin001′s decline, but Sina Weibo has filled that void.

Sina Weibo is far greater threat to Renren than Twitter ever was to Facebook. It’s Sina Weibo, not Renren, that has a decent chance of uniting all of China behind one social network–like Facebook has achieved in much of the rest of the world.

RedTech Advisers has a must-read powerpoint on “The Rise and Stall of SNS in China” (embedded below), which also questions Renren’s sketchy numbers,  saying “we see Renren’s page views and user views down 14% from 6 months ago (compared to a 3x rise in microblogs).”

2) Renren is NOT “The Zynga of China”

The explosion of social games greatly accelerated Facebook’s revenue growth, in part by driving ad prices way up. Renren is strong in gaming, but not social gaming. Renren’s open platform for 3rd party social game and application developers generated a measly $3.5 million in revenue in 2010.

Social game developers I’ve spoken with are flocking to Tencent’s Pengyou and Qzone social networks. One CEO said his firm was hitting a monstrous 10m daily active users on Qzone. Those user numbers dwarf what Renren can offer and are thus worth it despite Tencent’s lower revenue share (~30% vs ~48% on Renren).

Instead, Renren acts like a portal, directing traffic to web games and MMORPGs (45% of Renren revenues), the traditional moneymakers on the Chinese internet. That’s profitable (especially because Renren is vertically integrated and produces many of the games itself), but it’s also an industry that does not have nearly the same growth trajectory as social games.

Given the ravenous appetite for Chinese tech stocks, I still expect Renren to jump out of the gate (the initial share price range was recently raised upon high investor interest), though I would not speculate myself. I think it’s a fine business whose revenues (especially group-buying) will certainly grow (Jeremy Goldkorn also highlights a number of Renren’s strengths in a TechCrunch article), but I’m not sold on the user growth.

Renren is asking for a 67x multiple of its 2010 sales. Goldman recently valued Facebook at 25x. Renren is NOT Facebook.

Disclosure: I have several friends at Renren and have performed several hours of translation for them in exchange for compensation.