Youku Tudou Doesn't Have to Beat Baidu

Youku Tudou (UNKNOWN: YOKU.DL  ) is ready for investors to zoom in this week.

China's fast-growing video-sharing website operator will report quarterly results on Thursday afternoon.

Analysts are holding out for another period of healthy growth. They do see Youku's deficit widening to $0.75 a share, but they also forecast revenue to soar 94% for the period.

Now, to be fair, the top-line surge isn't entirely organic. Youku completed the acquisition of smaller rival Tudou in August of last year, so that 94% figure includes Todou's contribution. Youku's growth on a pro forma basis -- including both Youku and Tudou -- was just 21% during the first quarter of this year, and that's more in line with the organic growth that investors should expect this time around.

Investors don't seem to mind the red ink. The stock has popped 83% since bottoming out in December. Wall Street sees the company finally turning a profit next year after the synergies behind last summer's merger kick in and the rapidly evolving state of video monetization bears fruit.

Despite Youku's acquisition of Tudou, it's not fair to call it the YouTube of China.

Baidu (NASDAQ: BIDU  ) is actively contesting Youku's market leadership. China's leading search engine snapped up PPS in May, and when you combine that with its own iQiyi, you have two giants that have benefited from significant digital video purchases over the past year.

According to traffic tracker iResearch, Youku and Tudou combined to average 14 million daily unique visitors in June. With iQiyi at 7.9 million and PPS at 6 million -- or 13.9 million daily unique visitors -- it's a neck-and-neck race. 

Youku put out a press release to tout the third-party findings, but this isn't about bragging rights. There doesn't have to be one leader or one winner. Given China's migration online and the widening middle class, there will be plenty of opportunities to make a lot of money from digital video.

Youku investors may see red on Thursday afternoon, but the long-term outlook is lush and green.

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9/30/2016 4:00 PM
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