An advertisement for China's largest social networking website Renren.com in Beijing. Renren's stock rose by 1.53 percent on Monday in the US market. [Photo/China Daily]

Social-networking portal says deal worth $80b will be completed in Q4

BEIJING - Chinese social-networking company Renren Inc said on Sept 27 it will buy 56.com - an online video-sharing site - for $80 million in cash.

The acquisition, which will be completed in the fourth quarter, is Renren's first strategic takeover since its US initial public offering on May 4.

According to Joe Chen, chief executive officer, Renren chose 56.com because the moderately sized website has an obvious advantage in user-generated content (UGC). More than 90 percent of the video clips on 56.com are made and uploaded by its users, 56.com said.

Meanwhile, Chen said on Sept 27 he believed that the weak capital investment is the bottleneck for 56.com's development, and once the company has adequate capital, it could repay a good profit.

"56.com had lost about $500,000 during the second quarter, as UGC could not generate significant revenue at the moment," said Wallace Cheung, an analyst at Credit Suisse.

However, Chen said, 56.com has the best financial situation among Chinese video-sharing websites.

Data from Google Ad Planner showed that 56.com had 66 million unique visitors (UVs) and 960 million monthly page views in July 2011. Youku.com Inc, one of the nation's most popular video-sharing websites, had 140 million UVs and 4 billion page views in July.

Chen said that more than 10 percent of the page views were contributed by renren.com, China's answer to Facebook. "The page views renren.com brought to youku.com make up 10 to 15 percent of the total, but we didn't get any of its advertising income," he said.

As one of the nation's most popular social-networking websites, renren.com had 124 million active users as of June 30, according to iResearch, an Internet analysis company.

According to Renren, 56.com's CEO and co-founder Zhou Juan will become Renren vice-president after the acquisition.

In late August, 56.com's Vice-President Li Hao indicated that the company was considering a US IPO, after one of its major competitors, tudou.com, debuted on Nasdaq. The IPO plan ended without result.

Chen said $80 million is almost the best price Renren could offer, since his company is providing "way too much" of the investment in nuomi.com, Renren's group-purchasing arm. Renren had $1.1 billion net cash at the end of the second quarter, Cheung of Credit Suisse said on Tuesday.

56.com declined to comment on the takeover.

Renren started its first day of trading on the New York Stock Exchange at $14 a share, but it quickly jumped about 70 percent after the start of trade. The shares once hovered at $24 and then fell below the IPO price in mid-May.

The company's stock rose by 1.52 percent to $5.35 on Monday in the United States.

US analysts are offering 12-month price forecasts for Renren at a median target of $8.50, with the highest estimate at $12 and the lowest $5.25, according to a CNNMoney report.

On Aug 24, Renren signed an agreement with MSN China in a bid to explore new frontiers for the company in instant messaging and social networking. The two companies would join hands on services such as universal login access and cross-sharing of photos and status updates, said a Reuters report. Renren said the agreement will see a "significant level of integration" between the two platforms.