Youku Shares Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese online video company (NYS: YOKU) plummeted 21% on Thursday after its quarterly results disappointed Wall Street.

So what: Youku has been spending heavily to deal with increasing competition, but its third-quarter loss -- $7.4 million versus the consensus of just a $3.7 million loss -- is triggering fears that management is fighting a losing battle. Unfortunately, the pressure on Youku is coming from all sides of the profit equation, as rivals like (NAS: SOHU) and Tudou Holdings have been pushing up licensing costs and making it difficult to keep customers.

Now what: For the fourth quarter, management now sees revenue growth of 90%-100%. That's obviously outstanding, but unfortunately represents, as fellow Fool Rick Munarriz writes, "a slight deceleration from its triple-digit pace of the past." When you couple ever-increasing competitive headwinds with the stock's still-lofty price multiples, it's probably best to stay on the sidelines.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Sohu. 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 Fool's disclosure policy always gets a perfect score.

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