Why Youku Tudou Shares Jumped

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 China-based Internet television company Youku Tudou (NYSE: YOKU  ) soared as much as 14% after receiving an analyst upgrade at Macquarie.

So what: Research firm Macquarie upgraded Youku Tudou before the opening bell to "outperform" from a rating of "underperform" and raised its price target on the company to $21. This upgrade comes just days after Morgan Stanley (NYSE: MS  ) started Youku Tudou with an "overweight" rating and a $21.10 price target, claiming that the company is well positioned to capitalize on a growing Chinese online video market.

Now what: While I agree with both Macquarie and Morgan Stanley that Youku has the right audience, it still hasn't found the perfect formula to control its costs despite strong online advertising growth prospects. Youku is trading for nearly 12 times sales and isn't expected to show an annual profit until at least 2014. I think there are plenty of high growth prospects out there that can deliver you a better risk-versus-reward ratio than Youku Tudou can offer.

Craving more input? Start by adding Youku Tudou to your free and personalized Watchlist so you can keep up on the latest news with the company.


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