Why Youku Tudou Shares Got a Black Eye Today

Why Youku Tudou Shares Got a Black Eye Today

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 Youku Tudou lost over 8% of their value by the end of the day -- a slight recovery from intraday lows that shaved as much as 12% off the stock's value -- as investors had trouble reconciling the company's middling earnings results with their own expectations of high growth.

So what: Youku's second-quarter results came in as somewhat of a mixed bag. The company recorded a $0.10 loss per share, better than the Thomson Reuters analyst consensus of a $0.12 loss per share. On the other hand, the company's revenue -- reported at $122.8 million and 30% higher year over year -- very narrowly missed the $122.9 million consensus.

Now what: Analysts more or less shrugged their shoulders at the report while continuing to look ahead at Youku's potential. Wedge Partners analyst Juan Lin called the results "good but not great." Nomura analysts believe that the company will continue to expand its margins as the two Chinese online companies that came together last year finalize their consolidation. Citi analyst Muzhi Li also highlighted positive margin momentum, which could be a "critical step to breakeven" in the second half. ABR's Henry Guo raised his price target to $30, nearly 30% higher than today's close.

This is still very much a growth stock with a Chinese flavor, which means that investors will need to tread with extra caution around Youku's financial filings to be certain that they understand what's going on beneath the hood. The stock has had a hard time breaking out of a rather narrow trading range over the last year, and it might have a bit further to fall before the market has made up its mind. That doesn't mean that you should avoid it -- but make sure you've done your homework.

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