The stock rating of Renren remains unchanged

Morgan Stanley today released a study to keep Nyse:renn's stock rating at underweight, while lowering its target price from $3.1 to $2.7.

The following is a summary of the contents of the report:

Change: Target price reduced from 3.1 US dollars to 2.7 dollars.

Renren's third-quarter revenue fell for the first time since the IPO, with quarterly operating losses hitting its highest level since the IPO. The disadvantages from the challenges of mobile commercialization and increased competition remain. Renren expects fourth-quarter revenues to fall 36% to 41% year-on-year. The company's share price is underpinned by a higher level of net cash balances and stock repurchase schemes.

-Operating loss expansion: Renren's third-quarter revenue was 48 million U.S. dollars, down 4% per cent, down 6% from a year earlier, with a $36 million operating loss of $21 million trillion in operating losses over the same period.

-Adverse factors:

1 The third quarter of everyone's game sales fell 17% Year-on-year, because its game into maturity;

2 The third quarter of the company's advertising sales fell 12% Year-on-year, mainly because of increased competition. The growth of mobile traffic is likely to further erode its pc-based advertising sales;

3 The number of monthly active users in the third quarter of the company fell continuously, to 50 million people, a decrease of 7%;

4 for everyone, the company expects fourth-quarter revenues to fall 35% to 39%, down 36% to 41% on a year-on-year basis, with a bleak outlook for both the advertising and gaming businesses.

Renren has introduced more marketing measures to improve brand awareness, which we expect will expand its fourth-quarter operating deficit to $52 million trillion.

-Favorable factors:

1 The total time spent by users on mobile platforms is 80% (higher than 77% in the previous quarter), but the recent mobile commercialization process seems to be facing bottlenecks;

2 The total net cash held by Renren is USD 909 million, which accounts for 70% to 75% of the company's market value. Renren can repurchase shares worth 100 million of dollars, accounting for 8% of its market capitalisation.

-strong headwinds: Renren's mobile apps are moving from a social network application to a communications application, but other competitors have established dominance. Unlike its rivals, Renren has begun to commercialize mobile advertising, but its share of brand advertising in the fourth quarter is expected to be 10%, which is still disproportionately proportional to the length of its mobile media. We lowered our target price from 3.1 US dollars to $2.7.

Reasons for reduction:

We have rated the company as a "reduction", which mainly reflects our relative preference for China's internet industry sector.

So far this year, everyone's shares have underperformed their peers, and we expect that to continue in the near term. Renren is facing a headwind of increased competition, encroachment of mobile traffic, and delayed release of games. We expect that sales growth will slow in the near future, plus the impact of operating deleveraging, and its losses will increase. We are waiting for everyone to achieve profitability and profitability stability, and then we will be more optimistic about the stock.

We note that a higher level of net cash balances and stock repurchase schemes underpin the stock price of everyone.

Key value drivers:

-Expand the number of users by gaining market share in China's real-name social networking market;

-the number of paid subscribers and the growth of ARPU (average per user income);

-New service brings revenue stream contribution to everyone.

Potential irritant momentum:

-Social networking users grow faster;

-Glutinous rice Network to achieve better performance.

Main risks:

Upside risks: Increased commercialization of existing businesses (online gaming, online advertising and internet value-added services) and improved operating leverage.