Youku Tudou Is Getting Love From Under Performing Analysts

Chinese online streaming company Youku Tudou Inc (ADR) YOKU posted second quarter earnings on August 19, posting relatively decent results.

The company's net loss more than doubled from $23 million in the same quarter last year, coming in at $55.2 million. On the other hand, Youku Tudou's posted net revenue of $259.6 million, marking a 57% increase year-over-year and a 43% increase quarter-over-quarter.

The company's consumer revenue grew an overwhelming 596% year-over-year to $28.1 million as a result from increasing user adoption of consumer services, growing numbers of paying users and average spend per user of the company's interactive live entertainment service.

Dele Liu, President of Youku Tudou, noted, "We continued to significantly increase web-native content, which is one of the key growth pillars driving our business development this year, in addition to accelerated topline growth and revenue diversification. More specifically, we are creating cross-domain synergy for high quality IPs taking the forms of web series, online game, and movies, leveraging our large and growing user base and high quality traffic as measured by user time spent and user engagement."

The company will invest about $1.6 billion into producing original content similar to YouTube's original channels platform.

For the third quarter, Youku Tudou has forecast non-GAAP net revenues between RMB1.69 billion and RMB1.78 billion, with advertising net revenues contributing between RMB1.34 billion and RMB1.40 billion.

While this all sounds great for Youku Tudou, there is no hiding the hit the company has taken from the deteriorating Chinese economy. The company's stock has fallen more than 42% since its highest point in June, right before the Chinese stock market fell into bearish territory.

Analysts still see long term potential for the company, however. Brean Capital analyst Fawne Jiang reiterated a Buy rating on Youku Tudou on August 20 with a $26 price target following the company's Q2 earnings results. The analyst attributes her bullish rating to two reasons: "1) with ad revenue healthy and the consumer business a robust driver of growth, the company is back on a fast growth track; and 2) with increasingly differentiating content strategies (largely upon original, UGC and PGC) and solid progress of revenue diversification, thanks to consumer revenue taking off, we see potential room for improving cost structure/ margin profile."

Jiang comments that it is "important to note that we see industry consolidation as overdue for the online video vertical. Any major consolidation with YOKU involved would likely be a catalyst for the stock. If competitors tied up, YOKU would likely see serious headwinds accordingly."

On average, Fawne Jiang has a 38% success rate recommending stocks and a +0.6% average return per recommendation when measured over a one-year horizon and no benchmark. She has rated Youku Tudou 9 times total, earning a 33% success rate recommending the stock and a +0.3% average return per recommendation.

T.H. Capital analyst Tian Hou weighed in on Youku Tudou ahead of earnings on August 19, upgrading her rating to a Buy with a $33 price target, citing that the company is "well positioned to benefit from the upcoming market consolidation."

Overall, Tian Hou has a 31% success rate recommending stocks and a -7.5% average loss per recommendation when measured over a one-year horizon and no benchmark. She has rated Youku Tudou 4 times, earning a 50% success rate recommending the company and a -1.3% average loss per recommendation.

Out of 6 analysts polled by TipRanks within the past 3 months, 3 analysts are bullish on Youku Tudou, 2 are neutral, and 1 is bearish. The average price target of Youku Tudou is $24.88, marking a 40.17% potential upside from where the stock last closed.