The Performance of the Youku IPO

Brian Roy

Youku IPO

Youku IPO Performance

The Youku IPO for Inc. (YOKU), which took place during December 2010, was the one of the biggest Initial Public Offering (IPO) of a Chinese company in the United States during 2010.  Youku is a Chinese online-video website that provides Internet television and professionally produced video offerings from a large video content library to over 280 Million monthly visitors.

The Youku IPO made quite a splash when it occurred, closing at $33.44 on its first day of trading on the New York Stock Exchange (NYSE) from its offering price of $12.80 per share.  This was the best first-day rally of a Chinese company IPO on a United States stock exchange since China’s leading search engine company Baidu, Inc. (BIDU) did an IPO in 2005.

The first half of 2011 saw the shares from the Youku IPO soar to over $60 per share, as general market sentiment was good at that time and market participants actively pursued Chinese IPOs such as the Youku IPO.  With the negative change in market sentiment and disappointing revenue guidance from Youku during the second half of 2011, Youku’s stock has taken a dive into the teens.  The revenue guidance decline is due to competition from other Chinese Internet television and video providers.

Despite the second half of 2011 selloff, the Youku IPO has performed better than many other Chinese IPOs over the past two years.  Unlike many other Chinese IPOs that trade below their IPO offering price, Youku’s stock is still trading above the Youku IPO offering price of $12.80 per share.

Forward Looking Outlook For Youku IPO

Looking forward, the Youku IPO may turn out to be a good investment from its late 2011 trading level in the teens.  However, investors should not expect a quick turnaround from the Youku IPO in 2012.  In November 2011, Youku reported an earnings per share loss of 6 cents, which was twice what the consensus analyst estimate was expecting.  As Youku increases spending on expanding bandwidth and marketing during 2012, most analysts who follow the company do not see profitability until 2013.

Youku’s revenue growth is expected to slow in 2012 compared to 2011 to just under 100% year over year revenue growth.  While this is an impressive rate of revenue growth, it is below what may be necessary to give the stock a boost in the near term.

One bright spot for Youku in 2012 is a decision in late 2011 by the Chinese government that bans advertising during drama-related broadcast television shows.  Many analysts expect online- Internet television websites such as Youku to benefit from this broadcast television advertising ban, as advertisers switch from broadcast television advertising to Internet television advertising to maneuver around the ban.

As with any company and stock sector, there are many variables that could affect Youku’s stock performance in 2012 and beyond.  Ultimately, the performance of the Youku IPO will depend upon how well Youku deals with the competition in their sector and how successful they are at attracting viewers and advertisers.

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