Meet China's Next Hot IPO

Meet China's Next Hot IPOBy Rick Aristotle Munarriz, Motley Fool

The world's most populous nation is warming up to social networking, restrictive shackles and all.

Renren filed to go public last week, giving stateside investors another shot to cash in on China's online revolution from the inside.

There are 117 million activated renren.com users as of the end of last month. Revenue is growing quickly, leaping from $13.8 million in 2008 to $76.5 million in 2010. Profitability hasn't been as kind, though. Renren has posted sharp net losses from continuing operations over the past two years.

The good news for Renren is that you don't have to be profitable to be a hot IPO. Youku.com (YOKU) was the hottest debutante among companies going public during last year's fourth quarter and the video-sharing site isn't close to turning a profit. E-China Commerce Dangdang (DANG) is in the black, but the web-based book retailer isn't going to wow income statement watchers with its net margins in the 1% to 2% range.

Renren's good fortune is that it's also in a hot sector. Investors hungry for the still private Facebook are likely to pounce all over this offering. Latin America's Quepasa (QPSA) had a brief speculative spurt until investors digested its uninspiring engagement metrics. Renren doesn't have to worry about that. Unique logins are spending a monthly average of seven hours on the site, so it's clearly sticky enough to be taken seriously as China's Facebook.

The rub for Renren outside of its crummy bottom line is that there are several companies angling to be the champion of China's Facebook. Sina's (SINA) Weibo is a rising star as a micro-blog blend of Twitter and Facebook. QQ.com parent Tencent recently launched QQ Login, giving its leading IM platform a social spin.

There's also the real possibility that China's Facebook may be Facebook itself. The site is currently blocked in China for all but tech-savvy circumventers. However, CEO Mark Zuckerberg was touring China a few months ago, and premature reports out of China earlier this month had Facebook teaming up with search leader Baidu (BIDU). The two make obvious dance partners, but they better hurry and learn to do the hustle. Renren's IPO -- if successful -- will draw even more attention to the fast-growing social networking website.

Baidu is a
Motley Fool Rule Breakers pick. Sina is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz has been a fan of China's growth stocks for several years now, even though he does not own shares in any of the companies in this story. He is also part of the
Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.



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