Is Renren (RENN) Stock Poised for an Earnings Surprise Like BIDU and SOHU?

by Jason Bond of JasonBondPicks.com

Stocks often run up the week before earnings. This can be a very predictable trading strategy no different than playing volatile biotechs as they walk up the charts prior to FDA rulings.

In the two weeks before Chinese Internet stars Baidu (NASDAQ:BIDU) and Sohu.com (NASDAQ:SOHU) reported Q3 earnings, each stock pulled back roughly 12% in the first five days before running up 17% and 25% respectively in the second five days just before the earnings announcement.

If you’re like me, then you look for great opportunities to play the swings on stocks running into earnings season.

If we start two weeks out, just like the two above, Renren (NYSE:RENN) shows a similar pattern heading into its earnings report this Thursday. Renren however, has pulled back more aggressively than Baidu and Sohu.com combined or about 26%.

With four days remaining before Renren reports Q3 earnings, I’m looking for shares to rebound from Friday’s low of $5.18.  I’m not saying that I necessarily want to hold the stock going into the earnings call, but I think it is a good short term set up for the stock prior to that event.

China, unlike the United States, is growing extremely fast and most Internet stocks in that space are growing even faster. Baidu reported stellar numbers for Q3 and excellent Q4 guidance. Internet portal Sohu.com reported briskly growing Q3 numbers on a 19% increase in net income thanks to strong online advertising and online gaming.

Renren operates an Internet website. Coming of a red hot IPO earlier in the year, they are currently sitting on over $1 billion in cash and no debt. For a small company like RENN, I feel that is a massive backstop even if they remain unprofitable for the foreseeable future.

Their real-time social networking website offers users the ability to communicate, share information and content, play online games, listen to music, shop for deals, and use other services.

Here is a closer look at how Baidu and Sohu.com traded in the ten days before they reported and why I think Renren could be set up to do the same. These are hourly charts.

Baidu, Inc. (NASDAQ:BIDU) reported Q3 earnings on Thursday 10/27/11. From Friday 10/14/11 to Thursday 10/20/11 two weeks before earnings shares pulled back 12% from high of $138.53 to a low of $121.66. Then the week before earnings from Friday 10/21/11 to Thursday 10/27/11 shares ran up 17% from a low of $119.58 to a high of $140.00 before running another 5.5% after the earnings announcement.

Sohu.com, Inc. (NASDAQ:SOHU) reported Q3 earnings on Monday 10/31/11. From Monday 10/17/11 to Friday 10/21/11 two weeks before earnings shares pulled back 13% from a high of $61.90 to a low $53.75. Then the week before earnings from Monday 10/24/11 to Friday 10/28/11 shares ran up 25% from a low of $55.50 to a high of  $69.48.

Renren, Inc. (NASDAQ:RENN) reports Q3 earnings on Thursday 11/10/11 after the market close. From Friday 10/28/11 to Thursday 11/3/11 two weeks before earnings shares pulled back 26% from a high of $7.20 to a low of $5.31. If RENN follows BIDU and SOHU in walking up the five days before earnings then it’ll have resistance between $5.75 and $6.50 before it could recover the gap down heading into Thursday’s report.

Attention could also be drawn to the China Internet stocks this coming week with SINA Corporation (NASDAQ:SINA) reporting their earnings on Tuesday after the market close.

Baidu, Inc. (NASDAQ:BIDU) is a Chinese-language Internet search provider. In November 2010, the Company established its subsidiary Baidu USA LLC (Baidu U.S), a research and development facility controlled by Baidu Japan Inc. The Company serves three types of online participants, including users, customers and baidu union members. Baidu offers a Chinese-language search platform on its Website www.baidu.com. It provides Chinese-language Internet search services to enable users to find relevant information online, including Web pages, news, images and multimedia files. The Company designs and delivers its online marketing services primarily on its Baidu.com Website to its online marketing customers. As of December 31, 2010, Baidu had approximately 412,000 active online marketing customers. Its online marketing customers consist of small and medium enterprises (SMEs) throughout China, domestic corporations and Chinese divisions or subsidiaries of multinational corporations.

Sohu.com Inc. (NASDAQ:SOHU) is a Chinese online media, search, gaming, community and mobile service group. Sohu operates matrices of Chinese language Web properties and online games in China. Its businesses mainly consist of brand advertising business, online game business (conducted through Changyou.com Limited, Changyou), sponsored search business (conducted through Sogou Inc. Sogou), and wireless business, among which brand advertising and online game are its two core businesses. Its game players typically access its games at Internet cafes or on personal computers connected to the Internet. In order to access its games, its game access software must be installed in the computer being used. Game players using personal computers and Internet cafe operators can typically download its game access software, interim updates and expansion packs directly from its official game Website.

Renren Inc. (NYSE:RENN), formerly Oak Pacific Interative, is a social networking Internet platform in China. Renren generates revenues from online advertising and Internet value-added services (IVAS). The Company’s platform enables its users to connect and communicate with each other, share information and user-generated content, play online games, listen to music, shop for deals and a range of other services. Its platform includes: Renren.com, Game.renren.com, Nuomi.com and Jingwei.com. The Company is also a developer and operator of Web-based games and offers the games through game.renren.com. Renren.com is the Company’s primary social networking Website in China. Game.renren.com is its online games center. Nuomi.com is Renren’s social commerce sites in China. Nuomi.com is a independent new business of Oak Pacific Interactive Co. (OPI) that offers a daily deal on the local services and cultural events.

by Jason Bond of JasonBondPicks.com

Disclosure: My firm is long RENN