Tudou, Youku Merger Moves Ahead as Growth Slows 随着增长放缓，优酷、土豆合并有进展
But that said, the merged company could avoid many potential integration problems if Tudou founder and chief executive Gary Wang leaves the company immediately after the merger — an outcome that looks increasingly likely based on what I’ve been hearing. Even if Wang leaves, the merged company will have to confront a number of other problems, most likely a sharp advertising slowdown that’s showing up in the latest quarterly earnings from Tudou.
Added to that, the company’s results show Tudou is still highly dependent on advertising for the vast majority of its revenue, despite its efforts to get more money directly from subscribers for premium services like video on demand. That dependence could become a big source of problems for the newly merged company as China’s online advertising market has been showing signs of a sharp slowdown in the last few months.
Let’s take a quickly look at Tudou’s results, which show that the company’s revenue rose 47 percent, with online advertising revenue accounting for about 90 percent of that. (company announcement) At the same time, Tudou’s expenses more than doubled, with the result that its net loss also nearly doubled for the quarter. Furthermore, the 47 percent revenue growth was down sharply from the previous quarter’s 77 percent growth rate, reflecting a broader slowdown affecting most online companies dependent on ad revenues.
Tudou and Youku have both signed a recent series of deals to offer content from both Chinese and Hollywood filmmakers, but that part of the business still makes up a small portion of its overall revenues and grew by a relatively modest 50 percent for the quarter. Both companies have scheduled shareholder meetings on August 20 to vote on their proposed merger, and it does now seem like the deal will probably get approval from each side.
I had previously predicted the deal could be running into trouble after the sudden resignation of Tudou’s chief operating officer last month (previous post), but now it appears her departure may just be part of a broader house-cleaning that will include the resignations of all of Tudou’s top management, including Wang, once the deal closes.
While I do think the newly merged company could experience some pain due to integration issues and the advertising slowdown, I also believe it could be an interesting investment proposition over the longer term and potentially even an acquisition target for a global company like Youtube, which is owned by Google (Nasdaq: GOOG). Like Youtube, Youku-Tudou’s biggest challenge will be finding a way to lessen its dependence on advertising revenue and find a way to earn sustained profits. But Youku’s CEO Victor Koo has already surprised me by finding a way to do this merger in a China market famous for failed deals, so perhaps he can also rise to the challenge of putting his company on a track to healthy, long-term profits.
Bottom line: Tudou’s merger with Youku looks set to get approval later this month, though the new company will face the challenges of an advertising slowdown and growing losses.
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