August 9, 2012 (Chinavestor) China stock investors may be puzzled that up until today, Youku Inc. (NYSE:YOKU) has had a history of repeated net losses. However, there were signs of slowly declining yearly net losses within the past four years. Although Youku’s has reported net losses each year, there are positive signs. Youku’s net revenue has constantly been increasing with a 111% increase in net revenue compared to the corresponding first quarter in 2011. Similarly, gross profit have started to turn positive and increasing within the last four years.
From the graph above one can see that Youku’s revenue has been on a constant raise in the past few quarters. This is mainly because of increase in its advertisement business. Revenue increased in the most recent last two quarters by 96% compared to the corresponding quarters in 2011, meeting previously announced revenue guidelines. According to a statement made in 2012 Q2, the company expects further revenue growth for the third quarter.
Cost of Revenue
Cost of revenue has been on the raise in line with the increase in net revenue. Most of cost of revenue comes from content acquisition and bandwidth cost. According to a statement made during 2012 Q1 earnings announcement, the consolidation of the online video industry will bring along a decline in content price. With fewer competitors within the industry fighting over limited amounts of online contents, the cost for content will decline. This will allow Youku Inc. (NYSE:YOKU) to turn a profit due to declining contents cost and increasing revenue from a growing advertisement business over time. Along with Youku's organic growth, the company is making long term investments. Youku's acquisition of Tudou Hold. (NASDAQ:TUDO) is such a long term investment, leading to market consolidation directly affecting its advertisement business.