Piper Jaffray Gives Earnings Preview On Youku; Sees Upside In Share Price

Piper Jaffray believes Youku

will report 5% upside to Street revenue expectations for Q4, but we believe valuation remains fair considering the growth potential alongside concerns around content costs and competition. While Piper remains Neutral, it notes that video advertising at competitors in China has been growing healthily and it expects Youku as the market leader to also benefit. Piper notes that a license granted the company last week could enable it to gain a foothold in video search that could potentially help traffic sourcing. A generally overlooked part of Youku's business is its video search engine Soku, which returns results from various video providers in China. Piper notes the company obtained a license enabling it to continue developing the beta search engine. Piper believes that if they create a compelling video search product there is significant traffic they could control as Baidu's Video Search product has roughly 73 million unique users and 1 billion queries in December 2010. Piper Jaffray has a Neutral rating and $40 PT on YOKU YOKU closed Friday at $39.60