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11 Nov

What You Need To Know; Renren (RENN) After Earnings

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Yesterday afternoon, in an email sent to you, I detailed what would happen if RENN disappointed and suggested selling your shares if you weren’t comfortable with worst case. Well I’m unhappy to report it’s worst case but TRUST ME, this worst case is not that bad and I FULLY expect to trade out of RENN with profit over the next few weeks. Here’s how and why.

First let’s cover the numbers from last night. Many of you already heard this in our webinar. Net loss of $1.2 million for the 3 months ended Sept. 30. Facebook-like website swings the net loss on higher expenses, including investment in its daily-deals service. 4Q revenue outlook misses analysts expectations as RENN predicts $31 – $33 million and average forecast is $35.7 million. They’ll continue with investments, acquisitions and share repurchase plan. Revenue rose 57% to $34.2  million from $21.8 million. Gross margin fell to 80.4% from 81%.

But there is another metric I’m looking at that makes me confident RENN isn’t going anywhere anytime soon.

$1.3 billion in cash
0 debt
390 million shares outstanding
——————————————-
$3.15 cash per share cash (trading $4.50)

That means we’ve only paid about $2 per share and I think RENN is worth way more than that. Put it this way, if RENN shut down shop today it’s worth no less than $3.15. Will the Street reward when you miss, heck no, but is this stock going to fall apart, heck no. Can I trade out of it even or better, heck yes. It was worth the $1 – $2 upside for me based on their cash position and growth.

To compare, QPSA (Recent $2.95 – $4.73 win) has…

$12 million (not $1.3 billion) in cash
$7 million (not 0 debt) in debt
16 million outstanding shares
——————————————-
$.30 cents cash per share (trading $4.25)

This metric isn’t end all but it’s enough for me to know I can trade out of this short term. It’ll take some time for the Street to shrug off this current round of numbers. RENN isn’t going out of business or even close – their growth is explosive and I’m confident they’ll return above $5.25. I’ll probably add down here at some point if it seems logical and trade my way out of the dip.

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