Tudou Still Faces Obstacles

 | Nov 16, 2011 | 2:00 PM EST  | Comments
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yoku

Tudou Holdings (TUDO), a Chinese online video company, has had a rough 2011. It is eager to turn the page and move on to 2012.

A year ago, it beat Youku (YOKU) to the punch by being the first of the two large pure-play Chinese online video sites to file to go public in the U.S. But CEO Gary Wang's messy divorce held up the IPO for over six more months. By the time Tudou did execute its IPO, it had lost significant market share back home, was running low on cash and had to significantly discount its price in order to get the deal done.

The stock is still bumping along. The stock started trading in August at around $25. It's now below $15 with a $400 million market cap. Youku's market cap is over $2 billion. Youku also raised a successful secondary offering, so it has over $600 million in cash, compared with $182 million for Tudou.

Last night, Tudou released its third-quarter earnings. Here are the results:

  • Net revenue increased 52% year over year to $23.5 million in the quarter (I cannot find any analyst estimates yet for Tudou).
  • Of this revenue, the majority is from online advertising service. Only $2.5 million of the revenue is from mobile video service, although that unit's revenue is up 95% year over year.
  • Users increased to 96 million.
  • While revenue was up 50% year over year, Tudou's cost of revenue was up 100% year over year.
  • Internet bandwidth costs represented 29% of Tudou's revenue; content costs represented 28%.
  • Tudou's gross profit was basically flat year over year, and its gross margins dropped from 50% to 32%.
  • The company projected that fourth-quarter revenue would also be 55% to 60% larger than fourth-quarter 2010 revenue.
  • User-generated content now accounts for 45% of Tudou's overall Internet traffic.
  • The site plans to greatly invest in content over the next year through more partnerships like the one with Chinese online video site LeTV to get exclusive content.
  • Tudou plans to help support the rollout of broadband in China in order to raise the quality of the experience of Tudou users.
  • Tudou's video advertising is primarily for consumer products especially household items, apparel and shoes. Other big clients include autos, IT and telcos.
  • Brand advertisers accounted for 85% of the ad spending.
  • Tudou's sales grew from growth of average revenue per advertiser and total number of Tudou ad clients.
  • The average revenue per advertiser growth was higher in the quarter from overseas clients than from domestic clients.
  • Tudou now has 220 salespeople.
  • Ad prices will be flat in the fourth quarter but are expected to rise in 2012.

The market is showing no interest in the results. The stock is down 3.5% this morning.

Until Tudou shows that it is reining in its costs to keep pace with revenue growth, the stock will probably stay in investors' penalty box.

2012 looks like another tough year for investing in the future. Investors worry about whether the company will have enough cash to keep investing.

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