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Youku Earnings Preview: What Wall Street Has To Say

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Youku Tudou Inc (ADR) (NYSE: YOKU) is scheduled to report its first quarter results on Wednesday after market close. The Estimize consensus earnings per share estimate (based on four estimates) stands at a loss of $0.21 on revenue of $179.33 million. This compares to the Wall Street consensus estimate calling for a loss of $0.29 per share on revenue of $175.15 million.

Q4 Recap

Youku reported revenue of CNY1.264 billion (approximately $203.6 million in today's dollars) when it reported its fourth quarter results in late March. The reported revenue marked a 40 percent year-over-year increase and 14.3 percent quarter-over-quarter increase.

In a note on March 23, Nomura analyst Chao Wang commented that Youku's ad revenue is expected to grow 37 percent in fiscal 2015 as the company's active subscription count reached one million.

However, the analyst cautioned that heading in to the new fiscal year, Youku may be forced to step up investments in video content due to an ongoing competitive environment. As such, this may further broaden the loss gap and the company is unlikely to show a net profit until fiscal 2017.

Wang concluded that fiscal 2015 will prove to be a "challenging" year for the entire Internet sector and investors should stick with traffic platforms and avoid crowded verticals.

Shares were rated with a Buy rating with a $24 price target.

Deutsche Bank Cautious On Competitive Environment

In a report published March 27, Vivian Hao commented that the revenue gap between Youku and its key competitors has been "narrowing quickly." The company posted top-line growth of 33 percent in fiscal 2014, "significantly" lower than its peers including iQiyi that grew top-line by 108 percent year-over-year and Tencent video at 167 percent year-over-year.

"Aside from the high base effect, we believe moderating growth and market share loss were mainly due to Youku's major scaling-back of head-content purchasing in fiscal 2014 while its major competitors became more aggressive," Hao wrote.

Looking forward, Hao noted that Youku intends to return to another year of "hefty" investments to regain growth momentum which is likely to "significantly" depress the company's margins.

Shares were rated with a Sell rating and $12 price target.

Summit Research: Stay On The Sidelines

In a report published April 19, Henry Guo initiated coverage of Youku with a Hold rating and $16 price target given an intensified competitive market in which the company has been losing traffic share to its competitors.

"While we are positive on the online video's growth potential driven by broadband and mobile devices' further penetration in China, we expect competition to continue to intensify near term in the space, and believe Youku faces challenges both top and bottom-line," Guo wrote.

Guo said that Youku's increased focus on in-house contents and user generated content (UGC) should improve profitability, but then the gap between monetization and traffic to in-house contents and UGC is likely to negatively impact top-line growth.

Bottom line, the market's competitive environment will continue as Youku's peers including Tencent, iQiyi have shown recent "aggressiveness" on contents acquisition.

Latest Ratings for YOKU

Mar 2016Summit Research PartnersTerminatesHold
Oct 2015CitigroupInitiates Coverage onNeutral
Oct 2015CitigroupInitiates Coverage onNeutral

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Posted-In: Chao Wang Deutsche Bank ed calendar Henry GuoAnalyst Color Previews Analyst Ratings Trading Ideas


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