Too Much Face for Renren

Mark Zuckerberg is giving Chinese social-networking site Renren a lot of undeserved face.

The share price of Renren ran up more than 50% on the New York Stock Exchange in two days at the end of January. With no company-specific news to explain the sudden surge in a stock that has been on a downward trend since the middle of last year, there can be only one explanation: Facebook.

With Mr. Zuckerberg's networking giant poised to file for an initial public offering, investors are understandably excited. Facebook's valuation is rumored to be between $75 billion and $100 billion, on revenue estimated by eMarketer at about $4.3 billion in 2011. That means a price-to-sales ratio of about 20.

The temptation is to use Facebook's IPO to justify a higher price for Renren. Renren is, after all, a social-networking site. Better yet, it is a Chinese social-networking site, positioned to benefit from the explosive growth of online action in the world's second-largest economy. But the comparisons go only so far.

Facebook is the dominant player in the U.S. In China, Renren faces stiff competition. Facebook's revenue growth in 2011 is estimated at more than 100%. Renren's is likely to be around half of that. With higher operating costs and a less developed online-advertising market to tap, Renren will do well to break even this year. A price-to-sales ratio for Renren of 22 before the recent run-up was already ambitious; a ratio of 33 after the rally looks dangerously high.

In a competitive and fast-changing market, it is difficult to point to a Chinese equivalent of Facebook. But Sina's Weibo microblog claimed more than 200 million registered users in the first half of 2011, more than Renren's 137 million at the end of the third quarter. Weibo may have a better claim to the title of Chinese Facebook than Renren.

The Facebook IPO will generate a lot of buzz for social-networking sites. But investors planning to friend Renren should consider whether the Chinese clone really has the same promise as the U.S. original.

Write to Tom Orlik at Thomas.orlik@wsj.com