Renren Inc (NYSE:RENN) shares jumped after it sold its majority stake in the group-buy site Nuomi.com to Chinese IT powerhouse Baidu.com, Inc. (ADR) (NASDAQ:BIDU), reports Belinda Cao for Bloomberg. Baidu’s shares fell 0.7 percent after the deal was announced, its biggest decrease all week.
Baidu expanding into other areas
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is the dominant Chinese search engine (think Google) and like many IT companies trying to handle the transition to mobile computing, it has been looking to expand into other areas. The $160 million purchase gives it a majority share (59 percent) of the group buying site Nuomi.com, which sold $120 million in merchandise last quarter alone. Nonetheless, analysts are worried about the impact this purchase could have on Baidu.
“The deal is expensive and will be dilutive to Baidu.com, Inc. (ADR) (NASDAQ:BIDU),” the Chinese firm 86Research wrote in a note. Despite the recent volume in merchandise, they don’t expect Nuomi to “break even in the foreseeable future.” Similar doubts plagued Groupon, which has a similar business model, from the time it went public until the company finally became profitable and saw its stock start to rise earlier this year. Google Inc (NASDAQ:GOOG) had also tried to buy Groupon when it was still struggling, but Groupon Inc (NASDAQ:GRPN) turned down the offer, a decision that was widely criticized at the time.
A roller coaster ride for investors
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) managed to beat expectations last quarter after disappointing first quarter results, and has generally been a roller coaster ride for investors. Baidu is well positioned to take advantage of increasing internet access in China, and the company has so far managed to push American firms out of the market. Google China has less than 10 percent market share, and Yahoo China recently shut down its email service, not exactly a sign that business is booming.
But Renren Inc (NYSE:RENN) is still seen as the big winner in this deal. “This divestiture is beneficial to Renren’s financial positioning as it exits the cash-burning group buy business,” said Jefferies Group analyst Cynthia Meng. “We see no fundamental change in Renren’s core social network services business.” The group kept their target price steady at $3.30, but increased their rating from Sell to Hold, showing a small uptick in confidence in Renren’s future.