Renren Earnings: Core Revenues Decline Amid New Forays
Renren (NYSE:RENN) recently came out with its fourth quarter and full year results for 2014. The company’s results were hit by lower advertising revenues, primarily due to a decline in the monetization rate. Renren also completed restructuring activities related to the shutdown of its gaming division during the quarter. Below we discuss the key trends that drove the company’s Q4 results.
We currently have a $3.50 per share price estimate for Renren, which is significantly higher than its current market price.
See Our Complete Analysis For Renren
- Renren Continued To Disappoint With Q3 Results
- Here Are The Key Challenges Impacting Renren
- Renren Earnings Preview: Impact of Faster Internet, Gaming Consoles In Focus
- Renren 2014 Review: Mobile Monetization, Downsizing In Focus
- Renren’s Three Most Important Investments In 2014
- Renren Earnings: GAAP Income Down On Lower Revenue
Low Monetization Pressures Revenues
Renren’s total net revenues for Q4 2014 came in at $17.2 million. This marked a nearly 39% decrease on a year-on-year basis. The major source of this decrease was a reduction in online advertising revenues, which decreased about 44% year-on-year to reach $4.2 million. [1] This was largely a result of a decline in the monetization rate, as its ARPU declined 43% year-on-year in 2014. The company’s average monthly users (AMU), on the other hand, remained stagnant. The company’s CEO blamed this on two factors. Firstly, there was the combined effect of the shift of users to mobile devices and the company’s relative difficulty monetizing its mobile traffic. Secondly, advertisers have gravitated towards video hosting sites over SNS platforms for advertising of late. [2]
The lower ARPU of Renren relative to a competitor such as Tencent or Facebook (NASDAQ:FB) can be attributed largely to two factors. The first determinant of monetization is the user base. Having a large user base provides an incentive for users to spend more time using a service, since they have access to a greater amount of user generated content and can interact with more people. This “network effect” helps the platform to acquire more advertisers and charge a higher fee from the advertisers since it offers access to a larger target consumer base. [3] Secondly, there is the geography served. For instance, while Facebook earned an ARPU of over $7 from the U.S. and Canada in Q3 2014, its ARPU from Asia was just over a dollar. [4] So it is no surprise that Renren’s ARPU is so much lower.
Restructuring And New Ventures
After selling its video hosting and group buying divisions, Renren also shut down its game development business recently as a part of the restructuring process. [5] Henceforth, its only involvement in games will be as a publisher of third party games. The shutdown of these divisions led to significant restructuring costs and reduced revenues for the company, both in Q4 and full-year 2014. However, management believes that lower operating costs as a result of the restructuring will get Renren’s profits back on a growth trajectory going forward. [2]
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap | More Trefis Research
Notes: