Shares of Renren Inc. (RENN) surged 4.7% on Friday after the social networking Internet platform provider agreed to sell a majority stake in its group buying platform Nuomi to Baidu Inc. (BIDU), the largest search engine provider in China.
The reported sale (for 160 million in newly-issued shares in Nuomi) is expected to be mutually beneficial for Renren and Baidu. Shares surged 12.0% in intra-day trading on Friday.
Renren has been bearing the brunt of increased operating expenses to support its Nuomi business that has affected its overall profitability. Therefore, sharing the losses will not only improve Renren’s financial position but also enable it to concentrate on its core social networking business.
In the second quarter, Nuomi contributed 12.4% of Renren’s revenues, which increased 69.4% on a year-over-year basis. Nuomi's active paying users increased 44.2% from the year-ago period. The company’s operating expenses increased 32.6% from the year-ago period, primarily driven by Nuomi’s employee related costs.
For Baidu, the strategic investment in Nuomi is expected to strengthen its existing mobile location-based services (:LBS) and maps services. Nuomi’s platform is expected to broaden Baidu’s operations as well as its customer base.
Very recently, Baidu acquired the 91 Wireless app store business from Netdragon Websoft to strengthen its mobile Internet business. These acquisitions are expected to help the company gain traction in the mobile Internet business.
The company has $5.55 billion in cash and cash equivalents at the end of the June quarter and generated $522.2 million in cash for the period ended Jun 30, 2013. The strong cash position enables the company to go for further acquisitions to boost growth and help it to compete with its peers such as SINA Corp (SINA) and AutoNavi Holdings Ltd (AMAP).
Currently, both Renren and Baidu carry a Zacks Rank #3 (Hold).
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