PacCrest's Cheng Cheng Settles On $21 Fair Value For Youku Tudou

Pacific Crest's Cheng Cheng revised the estimates for

, after the company reported robust 2Q results. The analyst maintained a Sector Weight rating for the company, while suggesting a $21 fair value. Youku Tudou reported 2Q revenue of $244.3 million, beating the Pacific Crest estimate of $241.2 million. Revenue grow by 58 percent, as compared to 51 percent growth in 1Q15. "Lower spending in almost every cost item versus our model led to better margin and a non-GAAP EPS of ($0.18) versus our estimate of ($0.43)," Cheng said. Youku Tudou announced its 3Q revenue guidance at RMB 1.74 billion at the midpoint, marginally short of the consensus estimate of RMB 1.77 billion. "Youku's consumer business grew to 174.5 million RMB. Digging a little deeper, it looks like live social video business was also a significant driver of revenue growth (up 54 million RMB q/q) of the consumer segment in Q2 as well as the COGS (46 million RMB) associated with live social video," Cheng wrote. The analyst said that Youku Tudou's subscription business and content production appeared to be the "potential game changers" for the company's cost structure. However, it was "relatively early on both fronts." Although the company was achieving margin expansion, there was "limited visibility on the progress of improvements and margin levels at maturity given new revenue streams," Cheng added. The EPS estimate for FY15 has been raised from $(1.65) to $(1.34), while that for FY16 has been reduced from $(1.67) to $(0.81).