Launched in China, Youku.com's Stock Goes Into Orbit
Take a look at Youku.com (YOKU). In Wednesday's debut, the company's stock soared 161% to $33.44, raising $203 million. It marked the best return since Baidu (BIDU) hit the markets five years ago.
Then again, Youku.com is the dominant player in the fast-growing online video market in China. Interestingly, the company's name means "excellent and cool." It certainly is for some IPO investors who were able to get shares of the offering.
Where Youku Came From
With an MBA from Stanford, Victor Koo worked at Bain & Co. in San Francisco and then at Sohu, which is the largest Internet portal in China. While in Silicon Valley during the 1990s, he learned the tech trade and cultivated invaluable contacts.
Seeing the huge popularity for YouTube, Koo decided to try replicating that success in China. The result was Youku.com.
Now the site gets a whopping 203 million monthly unique visitors from homes and office. There are also 61 million unique visitors from Internet cafes. It adds up to roughly 40% market share.
YouKu.com is not just about user-generated content. For example, the video library has over 2,200 movie titles and 1,250 TV series. Such content is critical for attracting visitors. And with its growing size, YouKu.com is getting better economies of scale, which gives the company a cost advantage. It also helps that it has a strong video-delivery infrastructure (there are more than 5,500 servers) and that content is licensed at a fixed fee.
By far, China is the world's largest Internet market, with 420 million users. Of these, 87% are on broadband. And yes, China is also the largest mobile market, with 805 million subscribers.
Because of its strong demographics, the company has attracted 343 advertisers. For the first nine months of this year, revenues came to $35.1 million.
However, the current valuation is certainly at nose-bleed levels. Assuming the company's top line hits $50 million for the year, YouKu.com's shares will be trading at over 70 times revenues. Even for high-fliers in China's frothy market, this is a steep premium for growth. Thus, investors may want to wait some time to get a better value on these shares.