US Bank Merrill Lynch maintains neutral rating of $3.4 for Renren

Beijing time November 29 Morning news, BofA Merrill Lynch published a study today, the Nyse:renn stock rating of "neutral" (Neutral) unchanged, while its target price from 3.9 U.S. dollars to 3.4 U.S. dollars.

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

The game business is still in transition; peeling glutinous rice mesh Business

Everyone is still in the transition phase, the user from the PC side to the mobile end, online games and group buying (glutinous rice network) business is being reorganized. The reorganization activity included the stripping of the glutinous rice network business, which had sold most of its shares to Baidu (Nasdaq:bidu) and the reorganization of certain items in the game business. These restructuring activities will weigh on the earnings of all companies in the coming quarters, but if they do well, they could make their profit margins a year later.

But the long-term risks faced by Renren have led to an increase in the number of active users, so far, it has fallen for two consecutive quarters, mainly because of the cleanup of some junk accounts, which have increased in the previous quarters as a result of promotional activities, and other risks include competition from mobile communications tools such as micro-letters.

We expect the marketing campaign to start in the quarter to stabilize user growth early next year, but it should be a key indicator of investor focus.

-Performance Expectations Adjustment:

We cut the revenue forecasts for all companies in fiscal 2014 and fiscal 2015 respectively by 34% and 32% per cent, reflecting a drop in the sticky rice net and a decline in the revenue base of its gaming business; and it is expected that the time for everyone to achieve break-even will be postponed by one year to 2015. We will reduce the target price for everyone based on the cash flow discount method to $3.4 from USD 3.9.

-Revenue failed to meet expectations; earnings per share benefits from one-off items:

Renren's third-quarter revenue was $47.5 million (down 6% year-on-year, down 4%), less than the median of the company's previous range and the average analyst's expected $48.2 million trillion. Game business is still the largest business unit of the company, its third quarter revenue of 20.1 million U.S. dollars, down 14%, the chain down 12%, mainly because the old game has matured, and the new game is affected by reorganization activities.

Renren's third-quarter operating loss was $35.5 million trillion, a small difference from the previous quarter, with a net loss of $24.6 million, benefiting from 31.8 million dollars in investment income, and a loss of $0.07 per share, better than the analyst's average forecast of $0.095 trillion, mainly due to a one-time investment income that was not realized.

Everyone expects a fourth-quarter revenue of $29 million to $31 million, less than the average Wall Street analyst's expected $48.7 million trillion, largely due to restructuring activity.

Investment theme:

We believe that the profitability and growth momentum of the advertising business of Renren is strong, but its new businesses, such as video, E-commerce and mobile, are facing fierce competition and are likely to drag on their near-term profitability.

Target Price:

According to the Cash Flow Discount Act, we set the target price per share of US $3.4, which is based on factors such as cash per share of U.S. depository receipts, 11% discount rate, and 4% final growth rate.

Target price risk:

Downside risk:

1 competition from mobile communication tools may damage their users ' growth and profit margins;

2 The new business and acquisition of business may increase the cost, resulting in profitability and profitability under pressure;

3 reputation risk, user data abuse or user data leakage may lead to loss of users;

4 The slowdown in macroeconomic growth may affect its advertising business;

5 new/stringent regulatory measures and policies may affect content and user growth;

6 The reorganization of the game business has postponed the time of break-even;

7) Rational expansion and product expansion may affect ductility.

Upstream risk:

1 The rapid improvement of business conditions or the strategic reorganization of some loss-making business;

2) Dividends;

3 Active stock repurchase plan.