Youku Tudou In Flux, Vipshop Pauses
There’s a flood of earnings out today from US-listed Chinese firms, so I’ve decided to focus on online video leader Youku Tudou (NYSE: YOKU) and fast rising e-commerce firm Vipshop (NYSE: VIPS), whose shares are showing some unusual reaction to their respective results. In both cases, market outlook was clearly a major factor that helped Youku Tudou shares rally despite a weak report, even as Vipshop tumbled on what seemed like solid results. Let’s start off with Yoku Tudou, which was formed about a year ago with the combination of China’s top 2 online video firms. The marriage was rocky from the start due to very different corporate cultures, and I suspect that Youku encountered numerous issues at Tudou as it integrated the companies. As a result, Youku Tudou’s share of China’s online video market now stands at about 30 percent, down sharply from around 40 percent at the time of the merger.
Youku Tudou has also remained firmly in the red since the merger, despite hopes that the deal might help it move into profitability sooner rather than later. Youku CEO Victor Koo refused in a recent interview to forecast when his company might become profitable, and these latest results may explain his silence on the issue.
According to its latest quarterly report, Youku Tudou posted a net loss of 232 million yuan ($37 million) in the fourth quarter, a slight improvement over a year earlier but nearly double the loss in the fourth quarter of last year. (company announcement) The company’s revenue showed a similar pattern, dropping sharply from the fourth quarter of last year to this year’s first quarter but improving over the year-ago figure. But the company did forecast a big jump in revenue in the current quarter, which may explain the 4.9 percent jump in its share price after the results came out.
Youku Tudou is in a state of transition, as it shifts its focus to original content production from buying expensive premium content from Hollywood. With the Tudou integration now largely complete, investors are probably betting that the company can finally focus on the business of finding an elusive formula for profitability, which is still probably at least 2 years away.
From Youku Tudou, let’s look quickly at Vipshop, a discount online retailer which has become an investor darling over the past 8 months as it passed rival Dangdang (Nasdaq: DANG) to become China’s largest listed e-commerce firm. Vipshop reported a first-quarter net profit of $5.8 million, reversing a loss of $8.6 million a year earlier as it moved into the black. (results announcement) Its revenue also posted a healthy gain, tripling to about $300 million from year-ago levels. But the strong performance was tempered by its outlook for the current quarter, where it saw revenue growth slowing to 145 percent from the 200 percent in the first quarter.
I was quite amused at reading the headlines after the report came out. Initial headlines were all quite bullish, as Vipshop shares rallied more than 10 percent the day after the results came out on continued investor enthusiasm about the company. But the rally quickly fizzled, and Vipshop shares ended down 5 percent on the day. It’s also worth pointing out that at their current level of nearly $32, the company’s shares are still 6 times higher than where they were just 8 months ago when they began their meteoric rise.
I’ve previously said that Vipshop shares were probably due for a rest, as they’ve gotten a bit inflated due to all the investor enthusiasm over the last 8 months despite the company’s strong potential. In the meantime, Youku Tudou shares could look like a good bet for the future, now that its integration issues are in the past and it looks set for some solid growth.
Bottom line: Youku Tudou may be set for strong growth even though profits are still 2 years off, while Vipshop shares look set to take a break following their meteoric rise.
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