Nov. 24 (Bloomberg) -- Chinese stocks traded in the U.S. fell, led by Renren Inc. and Shanda Games Ltd., on concern that profit growth will slow at Internet companies as they increase investment to fend off competition.
The Bloomberg China-US 55 Index declined 2.6 percent yesterday to 94.54 at the close of trading in New York. Renren, a Beijing-based social networking website, sank to $3.75, the lowest since its initial public offering in May, after it was downgraded at Pacific Crest Securities Inc. Shanda Games, the third-biggest online games operator in China, dropped 9 percent after its parent company agreed to going private. Yingli Green Energy Holding Co. jumped the most in four weeks.
Chinese Internet-based companies including Sohu.com Inc., Renren and Youku.com Inc. have reported higher operating costs and lower profit margins in the third quarter as they step up investment amid increasing competition. Consumer prices in China rose an average 5.7 percent in the first 10 months from a year ago, above the government’s full-year goal of 4 percent.
“Increasing investment without near-term returns is becoming a theme across Chinese Internet and online game companies,” Pacific Crest Securities analysts led by Evan Wilson wrote in a research note. “Margins have come under pressure as competition for customers and engineers has increased. Increased spending has significantly outpaced revenue growth in many cases.”
Renren, which raised $855 million in its IPO this year, reported a net loss of $1.2 million for the third quarter, when five analysts surveyed by Bloomberg had predicted a profit. The company’s fourth-quarter forecast also missed analysts’ estimates. The losses may linger over the following two quarters, survey data compiled by Bloomberg showed.
Pacific Crest cut Renren’s rating to “sector perform” from “outperform,” citing an “increasingly complex competitive landscape, deteriorating near-term profitability, poor financial performance and exposure to difficult end markets.”
Analysts forecast gross profit margin at Renren and its bigger peers Sina Corp. and Baidu.com Inc. will fall in the fourth quarter from the previous three months, according to the survey data. Renren had 137 million active users by the end of September, compared with 227 million at Sina and 711.7 million for the QQ instant-messaging service at Tencent Holdings Ltd., China’s largest Internet company by market value, according to the companies’ third-quarter reports.
Renren slid 5.8 percent yesterday in New York, bringing the loss to 73 percent since its IPO when shares were priced at $14 each. Sina declined 3.5 percent to $63.51, the lowest level in almost a year. Tencent fell 2.8 percent to HK$154.40 ($19.81) in Hong Kong trading.
China, the world’s second-largest economy, grew 9.1 percent in the third quarter from a year earlier. Consumer price gains slowed to 5.5 percent in October from a three-year high of 6.5 percent in July.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 0.7 percent to 2,395.06 in its sixth day of declines, the longest losing streak in six months, after the preliminary purchasing mangers’ index by HSBC Holdings Plc and Markit Economics showed manufacturing may contract this month amid a faltering global economy.
The Standard & Poor’s 500 Index also slid for a sixth straight day as the cost of insuring European government debt against default to a record. The gauge dropped 2.2 percent to 1,161.79.
PetroChina Co., China’s biggest oil producer, and Cnooc Ltd., the nation’s largest offshore oil explorer, both declined to their lowest levels in a month as crude futures fell in New York. Crude for January delivery dropped 1.9 percent to a two- week low of $96.17 a barrel.
Cnooc appointed Executive Director Li Fanrong as CEO, replacing Yang Hua, who wants to spend more time on his job as president of Cnooc’s state-run parent, the Beijing-based company said in a statement yesterday.
PetroChina slid 3.3 percent to $121.02 in New York. Cnooc’s ADRs plunged 3.9 percent to $174.10. Cnooc’s U.S.-traded shares are trading at a discount to those in Hong Kong, which fell 3.2 percent to HK$13.90, the equivalent of $1.78. Each ADR represents 100 common shares
The ishares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., retreated 2.7 percent to a one-month low of $33.38. The Chinese yuan was little changed at 6.3590 a dollar yesterday, according to the China Foreign Exchange Trade System. The currency has appreciated 3.9 percent this year versus the dollar.
Shanda Games fell to a seven-week low of $3.96 in U.S. trading after the 9 percent plunge. The company expects fourth- quarter sales and operating margin to remain about the same as in the previous three months, Chief Financial Officer Richard Wei said Nov. 17 after the online game operator’s quarterly earnings report.
Its parent, Shanda Interactive Entertainment Ltd., agreed to a buyout offer from a group including Chairman and Chief Executive Officer Chen Tianqiao and his family, who are seeking to take the company private at a valuation of about $2.3 billion, according to a regulatory filing Nov. 22.
“The weakness in Shanda Games has mainly to do with its earnings and outlook, rather than the privatization deal of its parent,” said Adam Krejcik, an analyst at Roth Capital Partners LLC. in Newport Beach, California.
Yingli, a solar panel maker based in Baoding, China, jumped after saying it expects to have about 30 percent of the country’s market next year. China’s total market for solar panels next year should be about 3,000 megawatts and Yingli expects to get 30 percent of that, Robert Petrina, the company’s managing director for the Americas, said yesterday on a conference call. Its ADRs gained 12 percent to $3.96.
Suntech Power Holdings Inc., the world’s largest maker of solar panels, dropped 7.3 percent to $2.43 after Jesse Pichel, an analyst at Jefferies Group Inc. said the company’s survival is “in question” in a note yesterday. He said the company’s cost reduction plan may be “too little and too late” given its $2 billion debt and negative cash flow.
Suntech Chairman Zhengrong Shi said the company will reduce operating expenses by 20 percent and holding capacity expansion in 2012 as it reported Nov. 22 adjusted net loss of $116.4 million for the third quarter. Analysts had forecast a loss of $53.8 million.
The Shanghai Composite Index measure is trading at 11.3 times estimated earnings, compared with 14 for Indian stocks, 9.8 for Brazilian shares and 4.4 for Russian equities.
Markets will be closed today in the U.S. for a holiday.
--With assistance from Shidong Zhang in Shanghai. Editors: Marie-France Han, Brendan Walsh
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