Youku's Future Is Still a Moving Picture
Youku Tudou isn't a pretty picture today. Share's of China's fast-growing streaming video provider opened 8% lower -- trading off by as much as 12% a few moments later -- after posting uninspiring quarterly results.
The report itself was generally positive. Pro forma revenue climbed 30%, to $122.8 million, and we're going with pro forma here so we don't inflate last summer's needle-moving acquisition of Tudou.
More advertisers flocked to Tudou, and the average sponsor is spending more to reach its growing base of viewers. As the dot-com speedster experienced cost savings behind the combination of Youku and Tudou, its quarterly loss narrowed by 40%, to $0.10 per ADS.
The bad news here stems mostly on Youku's top-line guidance for the current quarter. Wall Street's already perched on the high end of that range.
There's no denying that digital video consumption will continue to grow in China, and Youku points out that mobile usage more than doubled through the first six months of the year. A healthy 180-million hours were spent consuming Youku clips on mobile devices in June alone.
Youku doesn't own this market. It thought that it would be the undisputed champ when it completed its purchase of Tudou last August, but Baidu is getting in the way.
Baidu took control of iQiyi last year, and acquired PPS three months ago, making this a tighter race for supremacy. Traffic tracker has Youku's sites attracting 14 million daily unique visitors in June against the 13.9 million combined daily unique visitors through Baidu's two properties.
As the world's most populous nation, naturally, there's plenty of room for several players. Dominating the market the way that YouTube does closer to home would be ideal. Advertisers would have no choice but to pay up to get their video material in front of a sizable audience. However, there's still a lot of money to be made, even with the way that things stand now.
Youku's 30% pop in pro forma revenue is actually an acceleration from the 21% year-over-year gain it posted three months earlier. No one should be surprised to see that video -- and, more importantly, the monetization of digital video -- grow faster than other Internet niches. The real question here is when Youku will be able to do this profitably.
"We do not want to forsake future growth opportunities for short-term profitability," Youku pointed out during the earnings call, when asked for some visibility on when it will turn that corner. Analysts see that happening at some point next year.
Youku shares had hit a fresh 52-week high earlier this week, so a step back in light of financials that didn't blow the market away is natural.
Now, investors will merely have to wait for its next snapshot to come in a little less red -- and closer to black -- in another three months.
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The article Youku's Future Is Still a Moving Picture originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu. The Motley Fool owns shares of Baidu. 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.
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