Sina Weibo moved its office out of Sina’s headquarter in the center of Zhongguancun, the so-called silicon valley of China, when the initiative was spun off as a subsidiary of Sina and targeted an potential IPO. On July 2nd of this year, Renren just relocated its gaming arm a new premise, echoing the spin-off the business. We wrote that Renren was spinning off its gaming arm for a potential IPO to retain talents and stir moral before.
It’s not something totally out of blue. But there have been some concerns over the spin-off. As the company is becoming more and more reliant on gaming revenues, the company’s share price might at risk if its gaming business is separated. He Chuan, a senior VP who will take over Renren Games commented on the concern saying that the spin-off will only involve independent operation but not capital-related. According to He, a separate IPO is impossible. What the company really wanted is to ramp up the branding of Renren Games. Usually a company spins off service for IPO in an aim to justify the valuation of its core business, which was the case for Sohu and Shanda. Obviously Renren’s situation is different.
Although from the earnings report we can’t help but thinking “Renren is Becoming a Gaming Company“, revenues contributed by games are not as that high as we thought it would be. So the business isn’t an “IPO material” for now. As to the true reason for the spin-off, Renren said so: “our gaming business is developing rapidly and we need to mobilize the staff by an independent operation.”
The company’s plan of an independent gaming unit has surfaced long ago.
The growing reliant on games – on the other hand – testifies Renren’s incompetent in ramping up its advertising business. If we look at Facebook, more than 85% of the company’s revenue comes from advertisement. While for Renren the number is lower than 30%. As the economic swoons advertise are getting more cautious about every penny they spent, the spin-off somehow speaks to Renren’s failure in advertisement business.