Renren Inc. :RENN-US: Earnings Analysis: Q4, 2016 By the Numbers : May 23, 2017

Renren Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Renren Inc. – SINA Corp., Sohu.com, Inc., Baidu, Inc. Sponsored ADR Class A, Alphabet Inc. Class A, Yahoo! Inc., Facebook, Inc. Class A, 51job Inc Sponsored ADR, Weibo Corp Sponsored ADR Class A and YY, Inc. Sponsored ADR Class A (SINA-US, SOHU-US, BIDU-US, GOOGL-US, YHOO-US, FB-US, JOBS-US, WB-US and YY-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 19.65 million, Net Earnings of USD -90.19 million.
  • Gross margins widened from -1.64% to 21.85% compared to the same period last year, operating (EBITDA) margins now -80.77% from -213.78%.
  • Earnings declined although operating margins improved from -214.02% to -80.77%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 19.65 17.52 14.09 10.5 13.32
Revenue Growth (%YOY) 47.51 43.18 -6.67 -22.99 -22.37
Earnings (mil) -90.19 -22.35 -45.18 -31.01 -50.65
Earnings Growth (%YOY) -78.06 72.35 41.88 -13.59 -235.81
Net Margin (%) -459.03 -127.53 -320.68 -295.49 -380.27
EPS -0.26 -0.33 -0.11 -0.29 -0.74
Return on Equity (%) -46.54 -10.92 -20.77 -13.46 -21.92
Return on Assets (%) -30.57 -7.7 -15.53 -10.1 -17.61

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Market Share Versus Profits

Revenues History
Earnings History

RENN-US‘s change in revenue this period compared to the same period last year of 47.51% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that RENN-US is holding onto its market share. Also, for comparison purposes, revenues changed by 12.14% and earnings by -303.62% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from -1.64% to 21.85%, while operating margins improved from -213.78% to -80.77% over this period. For comparison, gross margins were 19.76% and EBITDA margins -104.04% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

RENN-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 731.81 days from 1,561.37 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from -214.02% to -80.77%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from -320.95% to -423.12%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Renren Inc. provides social networking service and an Internet finance business. It operates through two segments: Renren and Internet Finance. The Renren segment includes online advertising and Internet value-added services. The Internet Finance segment provides credit financing to college students. The company was founded by Chen Yi Zhou in February 2006 and is headquartered in Beijing, China.

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