I recently stumbled upon Sammy Pollack’s post at SeekingAlpha: 3 Reasons Why Renren Is A Better Buy Than Dangdang, and it got me wanting to dig deeper into the two companies to figure out which one I think is a better buy.

Pollack’s firmly entrenched in the Renren camp. Here’s why he’s like the “Chinese Facebook” better than the “Chinese Amazon” (Dangdang):

1) Facebook IPO. The Facebook IPO could drive up interest in Renren as a social networking play behind the Great Firewall.

2) Dangdang churn. The recent resignation of Dangdang’s CFO, Conor Chia-huang Yang, is a sign there could be trouble under the surface at Dangdang.

3) Cash. Renren’s in a stronger financial situation on paper. Indeed, Renren has $284.64 million in cash and equivalents compared to Dangdang’s $30.4 million, and Renren’s actually operating at a profit.

More arguments for Renren

When I first started writing this post, I expected to argue that Dangdang’s the better stock. My research since then has me leaning toward Renren. In addition to the arguments above, here’s why I like Renren over Dangdang:

1) Competition. Dangdang’s got competitors that are aiming squarely for the company’s throat. Among them? The true “Amazon of China”: Amazon.cn. Amazon acquired Joyo.com in 2004 and has been building up it’s presence in the country ever since. Even today, Amazon.cn gets slightly more internet traffic than Dangdang (per Alexa.com).

On top of that, though, both Amazon and Dangdang are overshadowed by 360Buy.com (a Chinese online retail site with backing from Walmart – NYSE:WMT). Renren’s got competition, too (namely in the form of Pengyou.com), but at least it’s neck and neck with Pengyou.com; not a distant competitor struggling to make up ground.

A Twitter-like microblogging site in China, Weibo.cn, could pose the biggest threat to social networks like Renren and Pengyou. Already Weibo gets more traffic, and it’s owned by the deep-pocketed Sina Corporation (NASDAQ:SINA). For now, though, Weibo’s operating more like Twitter and less like Facebook. If that should start to change, Renren should really get nervous.

2) Investors “like” social networks more than retailers. OK. We don’t have official numbers on what sort of market cap the public will give to Facebook, but apparently, Facebook valuations tossed around during the Instagram acquisition went as high as $104 billion (per Dealbook). That’s actually more than Amazon’s current market cap of $102.2 billion.

To sum it up

Let me make it clear that I don’t dislike Dangdang. In fact, I think the stock still has significant upside (and I’d be surprised if it isn’t being looked at by a lot of Western companies, including Amazon, as a potential takeover target).

During its most recent quarter, Dangdang generated $190 million in revenue. That was far more than Renren’s $32 million. Renren has much lower overhead and profit margins, though, so the social network was actually able to claim profitability. Dangdang, on the other hand, operates more like Amazon – forgoing profit in the short-run as it sets itself up for better returns in the future. That makes me like Dangdang in the long-term. In the near-term, though, I expect Renren to outperform Dangdang – particularly in the wake of Facebook’s IPO. Things are just too unsettled in the online retail space in China for investors to dump all of their cash in Dangdang.

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