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Don't get too excited BABA - YOKU buyout

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money8 November 9, 2015 (Chinavestor) Landslide changes in China's online media landscape. Alibaba Holdings (NYSE:BABA) is buying Youku Tudou (NYSE:YOKU) for $3.7 billion. This looks too pricey given YOKU's long history of unprofitable operation and previous acquisitions.

Before going into detail, investors should take a look at how Chinese indices did in 2015 so far. Both the Hang Seng Index and the China ADR Index have substantially underperformed US counterparts. Appetite for Chinese listings in the US is just weak.

Key indices January - October, 2015

NL_Nov15_1

The Alibaba NYSE:BABA purchase thus is not timed right. Investors should not get too excited about BABA's latest purchase. Besides timing, the price is not right either. BABA is paying $3.7 billion compared to the "mighty" merger back in March 2012 when Youku (NYSE:YOKU) acquired smaller rival Tudou (NASDAQ:TUDO) in a $1 billion stock swap deal.

The idea behind that merger was that the combined YOKU - TUDO company will be able to turn profitable due to economies of scale etc... The fact of the matter is that YOKU has been loosing money ever since. Last year YOKU posted a record net loss of $892 million...

So why is then BABA buying YOKU? To please investors? It sounds like a wrong idea to me...



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