So much for that closeup. Shares of Youku Tudou (UNKNOWN:YOKU.DL) slumped after the leading streaming video website operator in China posted disappointing financial results. The stock opened 6% lower and was nearing a new 52-week low minutes into the trading day when it was off by as much as 13%.
Net revenue climbed 36% to $112.7 million, in the middle of its earlier guidance calling for $109.1 million to $115.1 million on the top line. However, that was a little light stacked up against analyst expectations that were spoiled by Youku's historically conservative guidance. After all, three months ago Youku's fourth-quarter revenue soared 41%. That was at the high end of its earlier outlook of 35% to 42% growth.
Guidance this time around also isn't very comforting. Youku sees revenue growth for the current quarter continuing to decelerate, coming in just 25% to 33% higher than the prior year's second quarter. Wall Street was holding out for 36% growth.
Analysts clearly weren't impressed with the report. Brean Capital slashed its price target on Youku from $36 to $27, and it's the generous one this morning. Deutsche Bank moved its price objective on Youku from $28 to $21. Maxim, which already lowered its price target from $24 to $18 earlier this month, revised that goal yet again down to $16. When three Wall Street pros are hosing down their targets, it's easy to see why the stock is falling today.
Losses are narrowing -- and that's good -- but analysts have still been pushing out Youku's goal for eventual profitability. The 2012 merger between Youku and Tudou was suppose to create the undisputed leader in streaming video with the size to scale to profitability quickly, but the combined company is still in the red. It may also not be the undisputed leader.
A true competitor has emerged in Baidu (NASDAQ:BIDU). The company behind China's leading search engine has become a force in online video after taking control of iQiyi and then acquiring PPS.tv. Youku claims to be the top dog, especially in mobile, where it's serving up 400 million videos a day. However, eyeing the decelerating growth, one has to wonder if the market itself is starting to cool down or if Youku is feeling the pressure of Baidu and other tech titans making a bigger play for online video. Monetizing chunky bandwidth-slurping video clips isn't easy, especially since many involve licensing costs on top of that.
It's easy to warm up to Youku for the long haul. Advertising will come around. Reaching China's rapidly widening and improving middle class will grow more valuable over time. However, it's just a tough store to sell today when top-line growth is selling and profitability is at least another year away.
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.