• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

Sizing Up Youku

Some wonder if Ctrip's disappointing results are a bad sign for China's leading video website.
By ERIC JACKSON Nov 15, 2011 | 02:30 PM EST
Stocks quotes in this article: YOKU, CTRP, DANG, TSLA, TUDO, BIDU, SINA, SOHU

Chinese streaming video site Youku.com (YOKU) is slated to release third-quarter earnings Wednesday. With the poor showing of Chinese travel website Ctrip.com (CTRP) on Monday, some are wondering if it's a harbinger of things to come from Youku, but I see the two stories as unrelated.

Ctrip went into the doghouse for its light fourth-quarter guidance, suggesting that top-line revenues would only increase by 15%  to 20% and operating profit would drop by 6%. This was far less than most observers expected, and the stock immediately got a 13% haircut.

The story at Ctrip is that its margins are under pressure as it goes after more market share. Having locked up most of the business traveler market, it is going after leisure travelers. This niche has lower margins. What makes it worse is that Ctrip is entering this market just as the Chinese government is tapping the brakes on growth and inflation is still being brought under control. Splurging for a vacation trip is not a top priority for many Chinese consumers right now.

For Youku, it's never been profitable and is much smaller in terms of revenue than Ctrip (about a quarter of Ctrip's revenues). Yet Youku investors are not buying it for profits today but for a chance at huge profits in the future. The allure of growth is what has driven this stock to nearly $70 in April. It's now trading just below $20, but still above last December's initial public offering price of $12.80 (unlike peer Dangdang (DANG)).

Analyst consensus is for Youku to announce a loss of $0.03 per share on $40 million in revenue for the quarter. I believe the company is likely to surpass its guidance on the top-line. This has been taken as a positive by the market in past quarters.

Youku is selling hopes and dreams - just like Tesla (TSLA) does with its electric sports car. Therefore, exceeding on the top-line fulfills those hopes. If Youku also guides above consensus for the next quarter, which currently calls for a loss of $0.02 per share on $48 million in revenue, that can also be seen as an enormous positive.

Finally, a positive influence on the stock could come if Victor Koo, Youku's CEO, discusses progress in bringing more Hollywood films as premium content to the service in the next year. Youku has had deals to show Inception and Kung Fu Panda 2 in China. Any new details on how Youku will offer more premium content to subscribers on a pay-per-view basis will be taken as a very constructive development.

The big question for Youku besides how quickly it will ramp up revenue and earnings is how quickly it will be able to slow down costs. For the past year, its content costs have risen faster than revenue. It's likely that this will still be the case in the current quarter. The company might even guide that it could continue through 2012.

Youku is the current market-share leader and it has been smart enough to raise a good amount of cash in a secondary offering to fortify its balance sheet against competitor Tudou (TUDO). The bigger risks to Youku's long-term success in acquiring premium content will be from bigger Chinese portals like Baidu (BIDU), Sina (SINA) and Sohu (SOHU).

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jackson was long YOKU and SINA, although positions may change at any time.

TAGS: Investing | Global Equity | Technology

More from Technology

Facebook Investors Shouldn't Panic Over Reports the FTC Wants an Injunction

Eric Jhonsa
Dec 13, 2019 2:44 PM EST

Recent reports have heightened fears that the FTC will push for Facebook to be broken up. But any such effort is by no means guaranteed to succeed...and might not be a disaster for shareholders even if it did.

My Trade Idea for Oracle

Stephen Guilfoyle
Dec 13, 2019 12:30 PM EST

ORCL is competing for the business to business cloud, obviously a tough space.

Broadcom's Guidance Is Stronger in Some Spots Than Others

Eric Jhonsa
Dec 12, 2019 9:04 PM EST

Broadcom expects fiscal 2020 to be a good year for networking and RF chip sales. But it forecasts a major drop in its "mixed-signal custom" wireless chip sales to Apple.

Trade Deal Apparently Arrives -- Now What?

James "Rev Shark" DePorre
Dec 12, 2019 4:41 PM EST

Market players are relieved to finally have this uncertainty at least partially resolved, but will it bring new highs or trigger profit-taking by traders who have been anticipating the news.

Nvidia Talks Shop at Investment Conferences: 5 Important Takeaways

Eric Jhonsa
Dec 12, 2019 4:29 PM EST

The GPU giant remains upbeat about cloud demand, and downplays the impact of Intel CPU shortages on its gaming GPU sales.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EST BOB LANG

    Banking a Big Winner in SRPT, Rolling Up

    Nov. 20 here on the CC, I mentioned buying some Ma...
  • 10:36 AM EST GARY BERMAN

    Fibocall: How High Can Crude Go?

    On crude: I am looking for higher, but please b...
  • 08:20 AM EST BOB LANG

    Webinar Time - Talkin' Calendars, Butterflys

    join me later today after the market close as we t...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2019 TheStreet, Inc., 14 Wall Street, 15th Fl, NY, NY 10005

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login