Youku Oh No!

It isn't easy to turn a profit streaming video in China.

Niche leader Youku.com (NYS: YOKU) posted mixed quarterly results last night. Net revenue soared 129% to $41.2 million. The site's net loss narrowed to $0.07 a share -- or $0.04 a share if you back out stock-based compensation. Either way, Youku missed Wall Street's bottom-line target calling for a deficit of $0.03 a share, though it did beat analysts' top-line forecast of $39.8 million.

Despite the rough sledding, Youku continues to trade above the $12.80 price it went public at nearly a year ago. However, the profitless speedster that peaked at nearly $70 back in April has now fallen all the way down to the teens. Rival Tudou (NAS: TUDO) -- which went public this summer at $29 -- has shed more than half of its value.

Making money streaming video for free through an ad-supported model is hard. Just ask Google's (NAS: GOOG) YouTube, which continues to make strides in monetizing its website but it will never be the high-margin business that Google's flagship search engine has become. Bandwidth isn't cheap, and there's a limited pool of display advertisers. Youku also pays for a lot of its professionally produced content.

Youku has turned to Tinseltown for a new revenue stream. DreamWorks Animation (NAS: DWA) and Time Warner (NYS: TWX) have gotten behind the Youku Premium pay-per-stream venture, though Youku will probably be as successful as YouTube has been to get folks to pay up for content. Youku's growth will continue to be tied to the willingness of advertisers to pay more to reach the Internet television website's growing audience.

Youku is targeting 90% to 100% in revenue growth for the current quarter, a slight deceleration from its triple-digit pace of the past. Clearly, this is still an impressive growth rate, though Youku's still lofty valuation begs for profitability to begin entering the picture around here.

Narrower deficits are moving Youku in the right direction, but now it needs to get to the finish line before it becomes the next of the many busted Chinese IPOs.

There are now nearly 10 active Chinese growth stock recommendations in theRule Breakersnewsletter service, though Youku isn't one of them. Check them out with a free 30-day trial subscription.

At the time thisarticle was published The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google and DreamWorks Animation SKG. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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