Deutsche Bank Comments On Youku Tudou Q3 Results

Deutsche Bank commented on the Q3 results of Youku Tudou Inc (ADR) YOKU Friday and maintained a Hold rating with a $18.60 price target.

Analyst Vivian Hao noted that “despite the encouraging subscription revenues (+473 percent YoY/+47 percent QoQ), we believe Youku is still struggling in mobile monetization with a stagnating ~30 percent of total revenues. Also, we expect margin pressure to continue given ongoing arms race in content cost.”

Hao believed that “FY15 [will] be another investment year for Youku. The company plans to scale up investments in all content categories, including original, syndicated, UCG/PGC, etc.”

“Particularly, management hiked the original content budget to RMB600m (~2X YoY/~11 percent of revs) to introduce ‘hot but expensive’ variety shows, ‘Big Brother‛ and, ‘The Voice Kids‛. Further, R&D is expected to go up (8 percent of revs for FY15E vs. prior DBe 6.7 percent) for multi-screen technology upgrade,” according to Hao.

Hao concluded with a cut to “2014 top-line by 1 percent based on its soft 4Q guidance; however, we increase FY15/16E revs by 4/4 percent to reflect the potential stronger ads growth from heavier content spending.”

Youku Tudou recently traded at $22.28, up 4.85 percent.