Can Youku Tudou Beat Out Baidu?

Youku Tudou (NYSE: YOKU) will release its quarterly report on Thursday, and investors have been pleased to see the stock rise recently to its highest levels since mid-2011. Yet as the Chinese Internet space matures, Youku Tudou will face increasing competition, and online search giant Baidu (BIDU +0.84%) has set its sights on the promising video arena. Can Youku hold off Baidu's charge and retain its grip on the Chinese video market?

Youku Tudou has come a long way since its IPO just three years ago, with the merger of its component parts, Youku and Tudou, last year helping the company become a video giant in China. Serving video content to Chinese viewers, however, comes with huge costs, as video requires extensive bandwidth, and also comes with a price tag for licensing the highest-quality in-demand content. As competition gets fiercer, the company will have to demonstrate its ability to grow both revenue and profits. Let's take an early look at what's been happening with Youku Tudou over the past quarter, and what we're likely to see in its report.

Stats on Youku Tudou

Source: Yahoo! Finance.

What's in store for Youku Tudou earnings?
In recent months, analysts have had mixed views on Youku Tudou earnings, narrowing their third-quarter estimates by $0.02 per share, but cutting their 2014 profit projections by the same amount. The stock has done well lately, rising 15% since mid-August.

Youku Tudou didn't start off the quarter very well, with its second-quarter report raising questions about its future. Revenue jumped 30%, even discounting the impact of the Youku-Tudou merger, leading to a narrower loss for the combined company. Yet even though mobile usage in the Chinese market more than doubled during the first half of 2013, Youku's revenue guidance for the remainder of the year didn't inspire much bullishness. Even with Baidu's acquisition of PPS boosting its video presence, Youku managed to keep a slim lead in daily unique visitors over Baidu.

Even if Baidu hasn't beaten out its rival yet, Baidu represents a big threat to Youku Tudou. With PPS bolstering Baidu's earlier iQiyi acquisition, Youku has some analysts fearing that more revenue weakness could be in store for the video giant going forward. Moreover, with Baidu and its rival Alibaba starting to get into the smart-television market in China, Baidu has an even bigger incentive to push content development in order to get more potential users onto its platform quickly.

Youku Tudou is taking Baidu's threat quite seriously. Just yesterday, Youku joined a lawsuit with Sohu.com and Tencent Holdings against Baidu for alleged online piracy and copyright infringement. If the suit is successful, it could not only hurt Baidu directly, but also make advertisers think twice about picking it over Youku, thereby potentially helping Youku protect its market share.

In the Youku Tudou earnings report, watch to see how the company plans to respond to competition from Baidu and Sohu. With Sohu rumored to be in talks to acquire a key independent player in the Chinese video arena, Youku could face a battle on two fronts in the near future.