The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( TheStreet) -- Jiayuan.com ( DATE) is a very popular online dating site in China with over 40 million users. However, like most of the Chinese Internet space, the shares have been pummeled recently, falling by more than 70% from 2011 highs. I believe that shares have at least 50% more downside, with limited catalysts for any upside movement. As a result I am short the stock. A good comparison is RenRen ( RENN), which many investors felt would bottom out at around $5.00. Despite having over $1.2 billion in cash, RENN now trades at just over $3.00, with a market cap roughly equal to the cash it has on its balance sheet. Effectively, investors are valuing the entire business of RENN at roughly zero.
Like many Chinese Internet stocks, DATE is being weighed down by the realization that the Internet space in China is no different than in the U.S., even though there are more Internet users and a much higher growth potential in China. What matters in the long run is actual financial results, and those companies which do not deliver see their share prices plunge. Good examples include YOKU, which was once a $70.00 stock and now trades at $16.00 (down almost 80%) and DANG which was once at $36.00 and now trades at $5.00 (down almost 90%). Each of these companies once had astronomical valuations based on the seemingly unlimited potential for Internet revenues in China. Now, the valuations have contracted enormously as investors realize that actual profits are not materializing.
In addition, not only are earnings negligible, but there is expected to be little or no growth going forward. DATE saw 10% growth in revenue between the second and third quarters, however the company has already given guidance that Q4 will show no growth and revenue will be flat at around RMB 90 million (about $14 million). If growth is already beginning to flatten out for DATE, the valuation will obviously need to contract considerably as the current valuation still suggests a fast growing internet company.
Given the headwinds facing all Chinese Internet stocks and those specific to DATE, it is hard to see who will have appetite for the stock. For the same reasons, I don't expect that existing holders will show much patience for a company with minimal revenue and no growth operating in an intensely competitive environment. This will become even more of an issue once the stock breaks through the key $5.00 level, which can often be a trigger for institutional holders to sell. In short, there may be some bumps along the way, but I expect that DATE will largely be a one-way street to $3.00 or less.