Adding a new tech stock to our radar: Youku (YOKU)

By: ispeculatornew
Date posted: 04.22.2011 (7:07 am) | Write a Comment  (3 Comments)

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We have never hidden our admiration and long term desire to hold Google and there is no doubt that the $1.65 billion purchase of Youtube a few years ago proved to be a great move. The video division has become so critical that it in the new Larry Page era, it is now managed fairly independently. That says a lot. Anyway, last week I discussed my strong belief that internet leaders in China will prove to be great investments and while Baidu (BIDU) dominates search and seems headed to domination in social thanks to its new alliance with Facebook, Youku (YOKU) is the leader in video, the Chinese Youtube.

That has brought a lot of hype. To give you an idea, the stock IPO’d at $33.44 last December and is alreadup nearly 100%…..

One of the things that I would recommend if you are considering investing in Youku (YOKU) is looking carefully at their financial statements which you can find here. You will notice that despite the company losing money in every quarter, its stock is currently over 60$ which values the company at around $7 Billion. Is it similar to the Youtube from a few years ago? As you can imagine, the company is growing at an incredible pace with revenues more than doubling in the last year. The question of course remains how long it will take and how profitable Youku will become…

Here are some highlights:

-revenues increased 152% in 2010 to $58.7 million
-net loss was $31 million, a 12% increase from 2009

Pros:

Youtube Potential : No doubt, Youku has a lot of potential. It’s easy to imagine how important the largest video website in the most important market could represent. Youku could become not only a huge internet player but they seem to be much more advanced than Youtube was in terms of professional content and there is certainly a lot of potential both from an advertisement point of view but also possibly getting paid subscribers at some point.

Leader in China: I discussed this last week but I truly believe that both the Chinese and their government will be pushing hard to make sure that they have some true leaders and while Baidu has clearly reached this status already, other positions are for grabs and Youku could certainly become one of them. If it does reach that status, I would expect huge benefits in terms of protection from competition, etc.

No competition from Youtube : In an internet world dominated by Youtube, Youku lives in a very good world. Why? Not only is Youtube banned in China but the owner Google, is in very bad terms with China and the new leadership by Larry Page is unlikely to put much effort into restoring that relationship. That leaves video in China wide open and lets Youku enjoy a benefit that competitors in other countries do not have; no competition from the might Google.

Cons:

No profitability: While Google does not disclose numbers per unit or per property, most analysts still consider Youtube to be a success but one that is not profitable. It might be, but if it is, it would only be slightly so. Why? There are huge bandwidth costs, sales, and growing content creation costs. All of those are increasing quickly and face a new market that is much more challenging. One of the reasons of course is that advertisers are often reluctant to have visibility next to a video that they have so little control over. All of this has presented many challenges to Google in its quest to make Youtube profitable. It’s easy to imagine how Youku, a few years behind in almost every aspect will be able to become profitable quickly. Will investors become impatient if they see costs rising faster than revenues? That is a very likely scenario in my opinion and it’s probably what’s still going on at Youtube.

Baidu competition: While Google is not competing through Youtube, Youku still is likely to face increased competition from Baidu and that is even more true thanks to its new joint venture with Facebook. Other big internet players in China such as Sina could also become formidable forces. I think it’s clear that Baidu could easily become a major video player and Youku will be very vulnerable in the coming months or years as it tries to establish itself in the Chinese market. Youku’s partnership with MySpace is nice but let’s just sat that a partnership with MySpace is a poor man’s alternative to a Facebook partnership.

China: Youku is basically only present in China and that certainly presents its challenges for foreign investors. First off, we have very little information about what is happening in the Chinese market both socially among the users but also the trends, government influences, etc. Also, major changes in trends for Chinese users might take a few days or more to reach our ears, that is certainly a concern with all of these Chinese companies.

Overall thoughts

I think Youku might become a very solid player and while I do consider it a major gamble at this point, I would consider trading it. Not as a long/short player on this blog but rather as a more long term play. It could certainly turn out to be a home run but also could be a failure. I think it’s a smart purchase at this point. I would love to hear your thoughts on this.

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3 Comments

  1. […] Adding a new tech stock to our radar: Youku (YOKU) Financial Resources Buy Gold at Goldline.com Highest Yield Dividend Stocks Debt Consolidation merchant services Unsecured Personal Loans for every need including loans for plastic surgery Canadian Pharmacy Loans with bad credit Your Browser does not support iframes. Archives Select Month April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 0 […]

  2. Comment by business — May 4, 2011 @ 11:41 am

    56.com earlier raised 6 million..Youku meanwhile has raised 28 million from Farallon Capital Bain Capitals Brookside Capital Partners Chengwei Ventures and Sutter Hill Ventures..Tudou.com is backed by Capital Today and ..56.com is using compression technology that keeps its bandwidth costs lower compared to other sites it says. 56.com is led by Kitty Zhou left who earlier was product manager at NetEase managing its email photo album and other applications for that early leading Chinese portal.

  3. Comment by IS — May 11, 2011 @ 4:31 am

    @business – So you are saying we should focus more on 56.com?:)

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