Shareholders of both Chinese video streaming websites have approved the acquisition that was originally announced in March. Now it's just a matter of Youku exchanging 1.595 of its American depositary shares for every single share of Tudou.
Youku and Tudou may be the country's leading players, but this isn't YouTube joining forces with Hulu.
Chinese traffic tracker Analysys International pegs Youku and Tudou as commanding 20.9% and 11.5% slices of the video streaming market, respectively, during the first quarter. In other words, the combined companies will still own less than a third of the market.
There will clearly be synergies realized, and Youku is going to need it. The company has yet to post a quarterly profit since going public two years ago, though some analysts see the combined company becoming profitable next year.
If it's hard to monetize video in the U.S., imagine trying to make chunky files pay off at China's lower ad rates.
Youku's trying. It's been signing up studios to its Youku Premium pay-per-stream platform. Joining forces with Tudou will also make it easier to hop on the coattails of SINA's
The only problem for Weibo is that China's biggest online companies aren't watching the video revolution from the sidelines. Baidu
Youku's stock has come down a long way since peaking shortly after its IPO. Snapping up the equally profitless Tudou is a sound strategic move. All that Youku has to do now is show the market that it can be China's profitable streaming leader.
I've streamed enough
I initiated a bearish CapsCall rating on Youku since its IPO popped. It's been the right call so far, but the company's long-term prospects are starting to look more appealing. I may switch gears on Youku soon.
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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.