Youku Tudou Off To Bumpy Start 优酷土豆合并后艰难开始
Leading video sharing site Youku Tudou (NYSE: YOKU) has just released its first earnings report since its formation through the merger of the nation’s top 2 players, and the results aren’t impressing anyone too much. The numbers themselves are a bit messy, which is often the case with a newly merged company where accounting differences need to be resolved and year-ago comparisons are difficult. (results announcement) But what these results seem to show is that Youku may have overpaid significantly for Tudou. What’s more, the results also show that Youku Tudou remains highly dependent on advertising for the big bulk of its revenue, a bad sign as China’s ad market shows signs of significant slowing.
Let’s start with a look at the company’s share price, which slid 5.2 percent in after hours trading after the results came out. At its current level of $16, the stock is now trading near its 52-week low. The stock is now at about half the level it reached after a wave of buying euphoria shortly after the surprise marriage between leading video site Youku with the second largest player Tudou was announced in March.
What surprised me most about this first combined report was the lopsided nature of this marriage. Analyst reports just before the merger had put Tudou’s share of China’s online video market at about 15 percent and Youku’s at 26 percent, meaning Youku accounted for about 63 percent of the combined company’s business based purely on market share.
But a look at the combined company’s revenues tells quite a different story, with Youku accounting for a lopsided 96 percent of the combined company’s revenue in the third quarter. What’s more, Tudou accounted for nearly half of the combined company’s net loss in the third quarter. The picture looks even worse in terms of operating loss, with Tudou accounting for a hefty 83 percent of the combined company’s operating loss of just over 100 million yuan, or about $16 million.
The main conclusion from all this is that Tudou is seriously adding to the combined company’s costs and losses without providing much revenue contribution. That means Youku probably overpaid for Tudou, with the result that the combined company could actually take longer to become profitable than Youku would have taken as a stand-alone company.
Meantime, progress also looks slow in Youku Tudou’s efforts to diversify its revenue beyond the money it gets from advertisers. Both Youku and Tudou announced a series of breakthrough licensing deals with major content providers starting last year, as each sought to build up premium pay-per-view services by offering films and TV shows from Hollywood and other major filmmakers. Yet despite all that effort, those services don’t seem to have gained much traction.
Youku Tudou didn’t give a third-quarter figure for advertising revenue, but its fourth-quarter forecast showed that advertising revenue would account for more than 92 percent of its total revenue for the quarter. That heavy dependence on advertising looks all the more worrisome due to a sharp slowdown in ad spending, which was reflected in recent results from leading broadcaster CCTV‘s recent annual ad auction. (previous post)
All in all the results don’t look too positive, though it’s still quite early and the company’s situation could quickly improve if the integration goes smoothly. But I also have serious doubts about how smoothly the integration will proceed, meaning we could see quite a rocky year ahead for both Youku Tudou and its share price in 2013.
Bottom line: Youku Tudou could face a rocky year in 2013, as it struggles with integration issues and weak performance from the assets of the former Tudou.
Related postings 相关文章:
