September, 2012 (Chinavestor) For disclaimer and report with full financial data, download the pdf version: CV_YOKU_2012_Q2.pdf.
We recommend a buy rating on Youku Tudou Inc. (NYSE:YOKU) because of 2 main reasons the growing revenue and market consolidation. Youku’s revenue has been on a constant growth and is expected to continue, which means Youku’s advertisement business is expanding. Secondly, Youku’s took the first move in market consolidation by acquiring Tudou. This gives Youku’s market advantage by holding more than a third of the online video market share in China. With good management, this will eventually lead to further consolidation and increase in its advertisement business. Furthermore, Youku’s large cash stock ensures that it will not run into financial difficulty anytime in the near future. Also Youku’s increased investment in content and bandwidth to improve its online video service, which could lead to greater online traffics. Beside all those positive side of the company, one of Youku’s greatest threats come from the Chinese government and its censorship laws. These laws do affect some of Youku’s services, however; it is undeniable that online advertising is critical in today modern world. Therefore, Youku’s holding more than a third of the market shares are in a great position to expand its advertising business.
Strong Revenue growth
Youku Tudou Inc. (NYSE:YOKU) Q2 2012 results indicate a 96% revenue increase compared to the corresponding quarter in 2011. Revenues are expected to continue its accumulation in future quarters. Gross profits have also been showing slow but steady increase in past quarters.
Strong Cash flow
Youku Tudou Inc. (NYSE:YOKU) is in a strong financial position with over 2 billion (CNY) in cash. Youku’s also increased its investment to improve its online contents and bandwidth. Youku’s been financing these investment though issuance of stocks.
Market Consolidation and Risk
Youku Tudou Inc. (NYSE:YOKU) recent merger with Tudou, the second largest market share holder in China, has given Youku the market advantage by holding over a third of the market share.