Youku Tudou Has a Lot to Prove Tomorrow

Youku reports tomorrow, and it will be pretty on the top but ugly on the bottom.

May 21, 2014 at 4:05PM

Online video in China has always seemed like a slam dunk. The world's most populous nation is flocking to the Internet and doing so largely on mobile devices that are ripe for passing the time streaming clips. Popularity has never been the sticking point. The real question is if the growing viewership can be monetized profitably, and that's where Youku Tudou (NYSE:YOKU) steps in.

Youku reports quarterly results tomorrow night. There's no doubting that revenue will grow at a heady pace. Analysts see revenue climbing 38%, perched near the high end of the dot-com darling's earlier guidance that calls for $109.1 million to $115.5 million on the top line. Despite the seemingly scalable nature of the model -- and strength in drumming up advertising to the point where it's accounting for nearly 90% of Youku's revenue -- Wall Street sees it losing as much money as it did a year earlier.

Analysts once believed that this would be the year that Youku finally turns the corner of profitability, but that target has been pushed out to 2015.

Youku and Tudou joined forces two summers ago. The combination made it China's biggest player in online video. Investors cheered the merger, feeling that it wouldn't take long before the synergies kick in to create a profit-generating beast. It hasn't happened. Ad rates still aren't high enough. Bandwidth costs and licensing rights still aren't cheap enough.

Despite the crummy margins, the wild streaming video market attracted China's leading search engine into the fold. Baidu (NASDAQ:BIDU) moved to combine its majority stake in iQiyi with an outright purchase of PPS.tv in a $370 million transaction

It's now open to debate as to whether Youku or Baidu is the top dog in China. A report earlier this year out of Chinese traffic tracker iResearch would put Baidu in the lead -- drawing 94 million active users in March to Youku's 83.5 million unique users -- but that doesn't dive deep enough on engagement and the actual generation of revenue where Youku would seem to have the upper and more experienced hand.

Baidu is paying the price for following Youku into this growing yet low-margin niche. The search giant's profitability isn't growing as quickly as its top line, and clearly it's Baidu's push into online video and mobile apps that's eating away at net margins. However, if we believe at the end of the day that it's all incremental -- and that it's no accident that the world's largest search engine happens to own YouTube -- then it's hard to fault Baidu and Youku trying to take advantage of consolidation in this still fragmented market.

It would be great if Youku offered up a timeline for eventual profitability tomorrow, but for now investors will have to settle for raw top-line growth.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it: Every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers