Russia’s most popular social network Vkontakte postponed the initial public offering of its shares indefinitely as a result of Facebook Inc.’s (FB) unimpressive market debut, the network’s founder and Chief Executive Pavel Durov said.
Mr. Durov said on his Twitter account Tuesday.
“The Facebook IPO damaged many private investors’ trust in social networks, and the [VKontakte] IPO has been postponed indefinitely.”
VKontakte is Russia’s most popular social network with about 119 million users. It was considering an IPO in 2012.
Mr. Durov owns 12% in the company, while Mail.ru Group, controlled by Russia’s richest man Alisher Usmanov, owns 39.99%. The latter company said Tuesday it had given Mr. Durov the right to vote with its shares, effectively giving him control of the company.
Mail.ru, which had its own $1 billion IPO last year, owned 56.3 million Facebook shares worth $2.14 billion when the shares debuted earlier in May.
VKontakte, looking very similar to Facebook, is popular not only in Russia, but also among Russian-speaking users in the former Soviet states.
Like Facebook, VKontakte allows users to message friends, create groups, public pages and events, make notes, share and tag images and video. It also offers games and integration with torrent file sharing technology to share large files like movies.
COMMENTARY: In June 2011, Reuters reported that VKontakte, the leading Russian social network was in early discussions with with New York investment banks about a potential initial public offering (IPO) sometime in 2012.
VKontakte offers functions that are very similar to Facebook. In fact, the site is an outright Facebook clone, even using the same pale blue colors. VKontakte got the IPO itch following the highly successful IPO of LinkedIn in March 2011 and Yandex NV, the leading Russian search engine in May 2011 which raised $1.3 billion.
VKontakte believed that the margin of success with an IPO would be high just like LinkedIn which traded 46 percent above its price and Yandex which traded at 20 percent above its initial price. Renren, the Chinese social Networking site also went public and traded its shares 20 percent higher. However, as of today, both Renren and Yandex have suffered a dramatic drops in their share prices.
In May 2011, Vkontakte claimed it had 58 million users, but has grown rapidly since that time. As of March 2012, Vkontakte had 118.8 million users, but has acknowledged that it has a huge spam problem, and no longer advertises user numbers on its homepage. VKontakte is ranked 46 in Alexa's global Top 500 sites and is the fourth most visited website in Russia. In January 2012 Vkontakte was visited by 25.4 million people from Russia (58.7% aged 12-54) and 21.5 million (49.6% aged 12–54).
Most of Vkontakte's users are from Russia and surrounding Russian-speaking countries. At the beginning of 2012, Vkontakte had a 62% share of Russian internet users. Facebook had 18%, nearly doubling its market share from the beginning of 2011.
Although Facebook is still the leading social network in many parts of the world, countries like China, Russia and Japan have their own social networks. Their users still prefer them to the giant network for some reasons. Vkontakte for instance, offers a special feature which attracts more new members daily and makes them spend a lot of time online.
Vkontakte has a huge piracy problem. Members are able to view thousands of pirated copies of domestic and foreign movies dubbed into Russian. In addition, it’s possible to upload and download video and audio files via the VK Tracker application. It remains to be seen how this piracy issue would've affected an IPO filing. The IPO filing has been cancelled so we will never know.