Youku announced 1Q earnings this morning, and the stock has decline on worse-than-expected EPS, but seems to be receiving support due to an improved forecast for 2Q earnings. Revenues showed a decline quarter over quarter, but maintained a year over year earnings improvement of 21%. The company, like many others in its field, is currently investing heavily in mobile software development and advertising partnerships and continues to consolidate its operations after last August’s merger. As such, near term losses are expected to be compensated for by long-term improvements in mobile and advertising revenue.
China is on the verge of becoming the world’s largest mobile software and content market, and as the Central Executive Committee seems to have little interest in rolling back censorship laws it appears that Youku Tudou has what amounts to a captive audience. However it appears that others are interested in cutting into Youku’s market. Baidu, China’s leading online search engine, has expressed interest in entering into the streaming content market. Analysts are wary of this move, however, comparing the possibility to Google’s floundering attempt to monetize Youtube. The longer Baidu and other competitors delay, the firmer Youku Tudou’s foothold becomes and the better equipped the company is to cope with any future incidence of competitive market entry.
bradyr@keeneonthemarket.com