Is Youku the worst stock in the world?

The Chinese video site had a great IPO this week, but now the stock is crumbling.

By Kim Peterson Dec 10, 2010 2:00PM
Tech investing © Angel Muniz/JupiterimagesSeeking Alpha has nothing but bad things to say about Youku.com (YOKU), the Chinese online video site that went public this week.

Youku shares took a huge dive Friday, plunging to $38.61 at midday from nearly $50 in the morning. That's still well above the $12.80 IPO price. Youku was one of five Chinese IPOs scheduled for this week.

What's so bad about Youku? For starters, its revenue for the first nine months of this year was just $35 million, and it lost $25 million in that time, writes Shane Farley.

That might be acceptable if the losses were improving, but Farley says they're actually growing. The loss for the same period in 2009 was $20.4 million.

"These aren't exactly the type of numbers you usually see in a company with a market cap of say $400 million, let alone one with a valuation of $4.25 billion," Farley writes. He thinks the stock price will drop considerably as investors figure out what's really going on. (Investors should really look at Youku's SEC registration filing for more information.) Post continues after video:
Youku also has a perfect storm of negatives: high bandwidth costs, high content costs and young users who don't have much leisure money, Farley writes.

The hysteria around Youku's IPO has set the company up for devastating disappointment for its next quarter. Even if Youku can pull off a profit of $2 million, Farley writes, then its forward P/E will be more than 500.

Youku had a great day of trading Thursday. Maybe today's action is the hangover after the party.

4Comments
Dec 12, 2010 9:30PM
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ALAN EUSTACE Google's vice president said"We're at the begining of an internet revolution and China ....will lead much of that revolution." I sold my positions last week but am going back in again. Hope shares drop further.HEE! HEE!

 Chinese people are busy working  and Youku provides them the flexibility to watch what they want when they want.

Dec 12, 2010 11:37AM
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Just  an observation: this article, 'IS YOKU THE WORST STOCK IN THE WORLD", is shamefully biased.

 

Title of this article should read:

I AM KIM PETERSON AND I AM SHORT YOKU

 

 

 

 

Dec 12, 2010 11:17AM
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I've read a lot of the posts about Youku since Friday, and I'm still waiting for reports by IT analysts, not traders or commentators. The negative press is as equally unfounded as the positive hype, at this point.

I found an interesting post on Seeking Alpha, regarding Youku in the perspective of previous: CHN IPOs like Baidu, the Google acquisition of Youtube and a valuation based on what ADvertisers are willing to pay per unique visitor to Youku. Check it out:

IT_ANALYST_1979, says:

" Look to Baidu for guidance [on YOKU]. IPO August 2005 @ $25 ADS. At the time of the IPO, Baidu was just barely turning a profit with weak financials for most to stomach; who didn't understand the nature of budding IT companies. Non-IT Analysts said it was over valued and the multiple was too high!There was a selloff, the Shorts made money then got squeezed, after profits surged by more than double YOY, as projected by analysts (who understand IT and the rapid web expansion in China). Now Baidu is sitting at historical highs of 107-8 at Friday's close. The chart is worth a look to provide doubters with some context on Chinese IT stocks & IPOs.


Baidu's IPO surged (354%) vs.Youku (165%) the first day, on equally weak financials.

Net income for Baidu leading up to and through the IPO in 2005($ mil USD):

NET 2004 2005 2006

Mar NA 0.33 4.30

Jun NA 1.50 6.00

Sep NA 2.50 9.00

Dec NA 4.00 12.00

FY 1.40 8.33 31.30


In sum, the more reasearch you do... the more you will feel comfortable with the current valuations and growth potential of Youku going forward. Compare YOKU to Baidu, Netflix, Google (Gootube), Apple, Red Hat and Amazon to understand the extravagant valuations of web-based IT companies and place YOKU into the proper context.


Sorry CNBC, Youku is NOT the Youtube of China....

Youku is a mix of licensed (70%) and user-generated (30%) content. Unlike Youtube, Yoku has a more advanced monetization strategy by providing licensed-streaming content for a fee, like Hulu and Netflix. The similarities between Yoku and Youtube are the familiar UI(user interface), banner ad model (in some cases) and the oppurtunity for user-generated content to be shared.


If you're still doubting YOKU's outlook, consider this: Google paid $1.65B for Youtube in 2006 when Youtube had only 40M unique visitors per month and only $15M in annual revenue.

A value of 41.25$ per unique visitor.


YOKU has 200M unique visitors per month and rising with current net rev of approx 0-$10M.

At 41.25$ per UV (using Google's 2006 valuation for Youtube), Youku's value = $8.25B.


Yoku at Friday's close: $37.50 with an approximate market cap of $3.8B

It's important to note that right now, advertisers in China don’t value viewers as much as in the U.S. due to the variance in disposable income, but as wealth continues to increase in China and Youku captures even more consumers, there will be a considerable gain in overall revenues for Yoku."


Dec 11, 2010 10:36PM
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Come on get real.Stock has moved up too fast so it's got to be brought down so more can get in.Wake up people.Baidu!!!!!This is better than Baidu. It is viewed all over the world especially in Korea, Phlippines Singapore, Malaysia, Indonesia. New tv serials are devoured daily by people hungry for soaps.It will add on newer and newer features. Baidu boss is worried.My sources tell me that it is a target for take over.Anyone heard anything?

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