Shares of Youku.com
China's leading video-streaming website made a scorching IPO two months ago. The stock went public at $12.80 in early December, and was trading as high as $50 by its third day on the market.
It's all been downhill from there. Apparently, investors rushed into the stock without checking up on the company's grim financials.
This company isn't simply losing a lot of money. Youku also sports negative gross margins! The $35.1 million in revenue that it generated through the first nine months of 2010 isn't even enough to offset its $37.2 million cost of revenue.
The first public investors were wowed by its 200 million unique monthly visitors, without reflecting on the costs necessary to maintain Youku's 5,500 servers and the challenges of monetizing bandwidth-heavy video streams via low-paying video ads.
Maxim Group's Echo He initiated coverage of China's leading video-streaming website with a "sell" rating on Friday. It's about time! He sees losses continuing until 2013, and even his price target of $22 implies a fat earnings multiple of 100 times the earnings he projects in 2013. In short, he's being generous.
Youku gained momentum when it was billed as China's YouTube, but it doesn't the same kind of lead on its competition. Fierce rival Todou filed to go public late last year. PPLive -- which uses cheaper yet more unreliable peer-to-peer delivery -- just raised $250 million from Asian juggernaut Softbank. There's also the much smaller Ku6
There is certainly money to be made from China's dot-com darlings. From Baidu
By the time profitability is an option, how confident can investors be that Youku will be leading the pack? Beyond Todou or PPLive, giant dot-com portals Baidu and SINA
Youku could be a great company someday. But for now, neither the time nor the price is right.
What do you think of the market potential of online video in China? Share your thoughts in the comment box below.
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Longtime Fool contributor Rick Munarrizis fond of Chinese growth stocks, but only the profitable ones. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.