Youku.com is one of the most popular video sharing website in China. Moreover, the company is well-known by the number 1 brand in Chinese internet television business. Product Orientation is that ‘fast access is crucial’, primary focus on user’s experience, continuous improving its service strategy. Since the features of products are quick play, fast upload, and high-speed searching engine, which fully fulfill the rapid growth in interaction among people, make YOKU become the leading power in video industry. In addition, Youku.com went public on December 8, 2010 EST time, as US$12.80 per share, traded on the New York Stock Exchange under the ticker symbol YOKU.
Youku.com (NYSE:YOKU) is one of the leading Chinese internet television companies. Their mission is to become the primary source of online video content for Chinese internet users across all Internet-enabled devices . According to the iResearch Consulting Group, Youku.com was the largest company in terms of total user time spent watching videos, holding 40% of the market share in the second quarter 2010. The next closest competitor, Tudou.com had 23% of the market share. Within its internet platform, people can search, watch and share video content by different devices everywhere and anytime simple and fast. The majority of Youku.com's videos come from professionally produced content such as television dramas, movies, variety shows, current event reports, and music videos. The remaining content comes from user generated videos. As of September 30, 2010, its video content library contained more than 2,200 movie titles, 1,250 television serial drama titles and over 231,000 hours of other professionally produced content, including 194 variety shows. The Company had approximately 203 million monthly visitors from homes and offices in September 2010 and approximately 61 million monthly visitors from Internet cafes in August 2010 . Youku.com purchases licenses to air the professional content for a fixed period of time. The company makes money through advertising revenue . The idea is generated by before you are able to watch specific content, there is an average 15 second rolling advertising time.
The video industry in China is significantly different from that of the industry in the United States and Europe, due to high government regulation and fragmentation of the creation and distribution of content. This fragmentation, combined with the movement of users increasingly online, has made the internet a large distribution channel for professionally generated content. As the China's Middle Class continues to grow and the number of internet users rise, Youku.com hopes to continue to follow this trend and expands its business beyond this considerable market.
The company's initial public offering of stock on the NYSE occurred on December 7, 2010. The company offered approximately 15.5M ADSs each for $12.8. This was well above the initial range of below the initial range of $9-$11. The IPO raised a total of $203M. The lead underwriter of the deal was Goldman Sachs Group (GS) .
Youku.com's revenues have risen substantially since 2007. The company reported total revenues of 387M RMB in 2010 which was a 151% increase over 2009. Between 2008 and 2009, Youku multiply its revenue by 367%. Despite these large increases, the company reported a 2010 net loss of 205M RMB and a 2009 net loss of 182M RMB and a 2008 net loss of 204M. In terms of its market performance, the company’s profitability is questionable .
As rapid increasing Chinese internet user, Victor Koo, who is the former Sohu president spent $3 million dollar on exploring opportunities in this promising future market.
After Youku finished its financing process, its official website launched.
Youku boosted by the 'Year of Youku Star User - paike', who using digital camera record the events they eyewitness and care about, blogging is now beyond word content. The particular affairs: The northeastern city in China suffered from heavy blizzard, a six year-old from a blue-collar family who had been diagnosed with leukemia, and a series of "One Day in China" video contests, waked up people from traditional broadcasting, more and more people engaged on online information exchange. All of these, brought Youku's video watching experience surpass 100 million per day.
Youku expanded its business to southern part of China by settled Shanghai and Guangzhou subsidiary. Also, Youku receives an "Information Network Broadcast Audio Visual Programming Permission Certificate" from the State Administration of Radio Film and Television (SARFT), authorizing it to broadcast video online, and a "Broadcast Programming Production Operation Permission Certificate" from the Beijing office of SARFT, authorizing it to produce audiovisual and broadcast content. With the approval by government, Youku developed smooth and health. By the end of the year, Youku rearrange its industry position, as a new internet media syndication company.
This year, Youku was mainly emphasis on technology improvement. It introduced several programs: online theatre with high-definition, install portal on 3G mobile, living concerts and ceremony, which invited more and more viewer join in Youku.
Due to the legal issue, Youku launched a copyright identification management system, with this system, the company can sieve the content which is violate copyright law out. However, people who is not physically located in the mainland, may block from watching specific items in some degree which reducing the satisfaction of viewer’s experience. On the other hand, the launching of Youku Index, provides Youku ability to track how each video performed in real-time. Moreover, the Youku.com website and software can widely used in iPhone and IPad. All Youku efforts and contribution is reward by chosen as a "Rising Star" by China Entrepreneur magazine .
As the chart you can see above, there are 5 key personnel in Youku’s management team.
With a trim, streamline and highly educated organizational structure, only 5 top executives who are the leaders of its 507 employees, make the communication from the top to bottom effectively. What is more, this clearly management structure can promote group think, avoid social loafing, and reducing the probability of lack of accountability. As a traditional corporate team, where an employees or group of employees is directly supervised by one manager to whom he or they are responsible. In turn, that manager is accountable to a higher level manager and so on. Employee can generate their newness ideas and report an issue directly to manager in time, where time is very important in internet business. In addition, on account of better troops and simplify administration, when a task or assignment is given to an employee, it is his or her responsibility only. It is up to that person to complete the work, utilizing whatever means is necessary to complete the task at hand; Youku's policy makes itself high efficiency and high production in lower cost.
Youku.com offers advertisers a prominent environment for promote the sales among a large mass of internet user. Its cross-media stage, lower cost than spending on TV commercial, make Youku stand out among the same kind website. According to its official statistic, Youku has forged partnerships with nearly 500 brand advertisers over the past several years, including household names like P&G, Coca-Cola, General Motors, Apple, Lenovo, Samsung, and China Mobile.
Technology refers to skills, techniques, and expertise that people utilize in their daily life and work. As everyone may find, technology progresses rapidly from day to day. How does the advancement of technology affect our life? Due to our existence in an “information age”, human beings have more access to a comfortable modern life. Nowadays, with information technology, we can search the news, or even watch the Olympic Games which can be telecast simultaneously all over the world for relaxation whenever we want. Furthermore, we are blessed with a good opportunity to take the initiatives in create and share personal idea and daily life online. The process of keep learning will certainly make our brains sharper, which also boosts us to approach technical brilliance with more satisfying results.
Youku is one of the prevailing social networking video website in China, which grab the need of people in this “information age”. The company mainly offers professionally content license from copy right holders, with following services category:
You can find your desired contents in different effective method.
It has great capacity content in high definition. Let the user find out the culture tendency in the first time.
You can have your personal playlist, subscribption, collection, PK stage, club and friends. The variety classification function enables you keep your habit, which also make the advantage of web 2.0 stand out.
Comments and rating on video, reduce the distance in this world. With interaction with each other, you can make friends, expand your social network, and improving your communication skill. Youku.com provides a stage where you can display your life and make your own decision.
Star user is a phrase, which is popular in China recently. It refers to a group of people, who upload, share and spread the video with people in different perspective. They have positive attitude in life, sharpen in thought and likely to find unusual phenomenon. Youku catch on this trend, supply these people -- video bloggers with large space to share exciting moments, independent films, anniversary contents through diversity devices from mobile to computer.
With the development of internet, it totally changes human being lifestyle all over the world. As expected, China is also in this favorable circumstance. The latest data indicts that China has 420M internet user, 364M broadband user, 316M online video user, and 277M mobile internet user. The popularity in internet using, offers the company both opportunities and challenges. Yoku’s headquarters are in Beijing 11F, Sinosteel Plaza, 8 Haidian Dajie, Haidian District, Beijing, 100080, China. As mentioned above, Youku.com is a internet-based company, thus, there is no constrict on where people can access to it. The only thing does matter is whether they have widespread devices. Watching through Youku.com makes users' expriences exactly what they want quickly and painless. As Youku.com expand its services on most of devices; now people can enjoy keeping in touch with the world anywhere and anytime.
Just having tons of video resources, is not enough for Youku. In order to attract more companies invest money on advertise their products on Youku website, the compnay should at least generate enough internet traffic in their website. With the purpose of reach this goal, develop network technology and make sure its technology is in leading position play a key role. The high quality of the video content, how fast they can upload or download from the servers, and what percentage it occupy in flow rate are all influence Youku’s overall performance.
Similar to other famous video content website, such as Youtube.com, and Tudou.com , they don’t charge any fee for the user. The only way this industry making money is from advertising part. Without paying any membership fee, allows anyone in China sit in front of the computer, and enjoy a TV or film-like watching experience. Since more and more HD format videos are available in Youku, more and more people choose youku as their primarily online video share platform. The company also benefit from this situation as its revenue from advertisement increasing rapidly.
Entrant is currently a strong threaten to Yoku. As the barriers of entry for online video share industry don’t expect a large economy of scale. It is quite easy to set up a website, and provides a platform that people can share their content. In order to having thousands and thousands of internet traffic, just create a fascinate events that making people pay attention to it, which even without much cost. Therefore, spreading the costs of services over the number of contents, it is not hard to achieve substantial market share. Meanwhile, if a website can attract enough internet users’ attention, advertising revenue will high without heavily spend on R&D. Nevertheless, new entrants need to compete with competitors on brand identification and customer loyalty. Finding a way to differentiation itself is a solution.
The buyers for this industry are advertiser. Although the internet and wireless technologies may increase buyer power by providing consumers with more information to make buying decisions and by lower switching costs, more and more of them begin to compare the video website visit capacity, negotiate prices, and have some influence on its revenue. Due to the characteristic of most video share webs in China are free; the bargaining power of buyer is little, they cannot really influence the business as long as they just represent a company. Since Youku has over 100 million daily click rates, getting access to each user is what buyers want in sales, they cannot pose a strong threat to Yoku’s profit.
The input required for Youku is technology services, worker and rich and colorful video contents. All these costs can squeeze the profitability of firm. Especially in this part, suppliers (who is the internet user) can exert bargaining power by threatening to change watching habit to others web or reduce the quality of information share. Recently, suppliers power is a big threaten to Youku. Since the development of Tudou.com is also want to public in NYSE. And a lot of Youku users have switched to PPSteam programs, or to of Ku6, all these competitors has erosional result on Youku’s advertising revenue.
All firms within this industry compete with other company’s substitute video content and services. Similar product limits the potential returns by placing ceiling on the prices that Youku can profitably charge on advertisement. Today, high speed is a main issue that makes a particular website becomes more attractive. For instance, when people urgent to watch a TV drama that they missed because of the meeting with clients, they may just search the content they want and choose whatever it is available at that time. If Youku has already upload the service, she or he may choose to open it just because their watching habit. On the contrary, if it is not obtainable, I don’t think people will wait for it instead of choosing handy resource in other online media provider.
The rivalry between existing competitors is very strong in Internet television business. First, there are numerous balanced competitors. For example, from foreign persepctive, there are Youtube.com, Hulu, and Metacafe. Domestically, Tudou.com and KUTV are as stronger players as Youku; their advertisement revenue compete with each other intensive in Chinese market, and they all try to carving up the largest benefit. Second, high fixed costs on purchasing copyright for video contents create strong pressures for all online video share firms to increase capacity. Last but not least, lack of differentiation make advertiser’s choice is based solely on internet visitors, resulting in pressures for intensive competition. All companies have video in movie, TV shows, news and etc; the content can be compared with others’ all the time. Without standing out in the market and have a unique product, it doesn’t give Youku advantage in sales.
The advantage of Youku.com comes from large capital investment, variety of products, celebrity rating and excellent management team. Even though Youku’s profitability is remain in state of anxiety, with 100 million RMB support by foreign syndicate, it lay a solid foundation in guarantee their technology research and support. Today, Youku becomes the highest easy and smooth online watching and sharing network. Also, even though the company’s market share in the China has dropped, as it the population in internet user expands, an increasing click rate will let them still catch considerable sales. Correspondingly, as there are wide variety of quality video contents that appeal to different target markets, people can access the information anytime and anywhere, which also contribute to brand loyalty. In corporate perspective, a highly united and cooperate team, with professional market promoter and technical staff is a long term treasury to Youku.
Behind on High Definition Movement is the biggest weakness to Yoku. As we mentioned before, HD influences a viewer watching experience. And more and more people prefer a high quality online television product. If the company cannot adapt to this new tendency, research and advance their technology fulfill customer’s need, will leading to a result that they keep losing market shares in China and decreasing profit. Limited on download service also hinders the process that a user shares a video content. Meanwhile, Yoku is struggling with stagnant profitability; overly depend on foreign investment, all these factors negatively affect the position Youku plays in this industry.
The future will be bright for Youku.com, if it can catch the opportunity of HD technology bring to them, and attempt to develop unique video share pattern.
Furthermore, according to DCCI data,
We can conclude that most of users on Youku are between ages 18-25. The younger population gives the company more potential and motive force in future development. In terms of most young people are get ready to accept new idea, the prospect on advertising effect is inestimable.
On one hand, Youku’s problem comes from the video content itself. Because the website advocates that internet user be their master, making full use of internet platform to publish and share video, it causes many troubles. For instance, who to ensure the quality of the content, and avoid unhealthy information impacted on teenager’s growth is a query. On the other hand, the copyright threat Youku’s existence. In terms of TV market, Youku’s independent broadcasting right does not have so many advantages when compare to its major competitor – Tudou. What is worse, the growth of pirate version can threaten company’s profit and market share any time. Due to the internet visit flow cannot transfer to advertising in this situation, without a business value can burden Yoku even more.
Base on information from yahoo finance, BIDU and SOHU are main competitors for YOKU. Baidu Inc. is a company who offered internet search engine in Chinese and Japanese language. Just like Google, people can find effective information in the forms of Web pages, news, images through the links. Addition to online advertising, Baidu also generates revenue through entertainment platform, consumer-oriented e-commerce platform. In fact, merchant pay fees in order to rank first when searching result comes out, and they hope using this way can stimulate sales and brand well-known. When compare with Youku.com, Baidu has more products category which is not only focus on video share business. On account of widely used by Chinese people, Baidu has more potential market cap and outlook than Youku.
The way SOHU earns its revenues that is pretty much similar to Yoku and Baidu, but the subsidiary business is different. Baidu is focus on developing information hunt. But SOHU offer customer a integrate website where people can read news, share video, entertainment, and communicate with each other. To achieve this goal, SOHU establish its brand awareness, sponsored search services, online role-playing games; and wireless value-added services, for example, weather forecast, chatting software, and ring tones over mobile phones.
Compared to its major competitors, Baidu and Sohu, Yoku’s stock price is quite low. Though stock price may not be a precise measure for company’s performance, generally speaking stronger the company’s performance, the higher the stock price would be. At the same time, compared to the Yoku’s highest stock price which was $69.95 on April 20, 2011, the current price is highly fluctuated. This also shows investors are questionable about the company’s profitability in future. In order to create value for its stockholders, keeping the tendency on towards increasing stock price, Yoku needs to make some changes in its negative figures on EBITDA, operating margin and net income.
According to Morningstar data, as of 4/28/2011, Yoku Price/Earnings ratio for FY 2010 was -263.2, which is further way from industry average who is 38 or 16.1 for S&P. Although PE ratio cannot interpret the whole company’s current situation, in general, it is reveal that investors do not expect Yoku have high future returns compared to its competitors, since its price to earnings ratio is too low. Correspondingly, its Price/Book ratio is still looks bad, there is a 65.5 difference between Yoku and industry. What was worse, Price/Cash flow for Yoku is only -357.1. As we know, how much cash a company can generate is one of the more important measures of business health. With liquidity problem, company will face serious problem when most of accounts come to due date. Investing in such companies like Youku is highly risky. Lower PE, PB and PCF ratio, enable the company’s performance unstable, thus, a slight change in its business environment can lead investors to a losing lots of money position. And from the valuation analysis, it indicates that there is something wrong with the Youku's operations or management, either company is severely undervalued, or that the company is in position for a buyout or sale. According to the news, Youku gained momentum when it was billed as China's YouTube, but it doesn't the same kind of lead on its competition. Fierce rival Todou filed to go public late last year. PPLive -- which uses cheaper yet more unreliable peer-to-peer delivery -- just raised $250 million from Asian juggernaut Softbank. There's also the much smaller Ku6 Media (NASDAQ: KUTV)) , valued at a sliver of Youku's gargantuan market cap. How can Youku pull itself out of this mess, is critical for whether it can survival in this market for the next few years.
Fortunately, Price/Sales gives a better picture of Yoku true selling power than the net income figure. Since Youku’s major source revenue is from paid advertising services, its much higher 192.3 Price/Sales ratio when compare to 6.9 industry average, proves that Yoku marketing strategy is success. As the company is still seeking paid service business and will spend funds on products and support methods, hopefully its acts will turn Yoku profitable soon.
According to yahoo finance data as of 12/31/2010, Yoku render a weak income statement, which is a caution to the company. In fact, although its revenue keeps growing, this promised its business a bright future. But gross margin and net income can still showed that Yoku is in a terrible position. Negative sign in both OCF and FCF also exacerbate the concerned about the health of business. Generally, a free cash flow is negative; it could be a sign that a company is making large investments on R&D. And if these investments earn a high return, the strategy has the potential to pay off in the long run. However, a negative operating cash flow refers to the company spends more than it earns, thus, something wrong may be going on in the company.
Unfortunately, Yoku’s profitability is concerned to investors from 2008 to 2010. The negative signal in gross margin, ROA would suggest that the company needs to work harder and more efficiently on using its capital from advertising to generate enough income to cover its necessarily expenses. Without a gain, how Yoku ensure its shareholders’ wealth. Even though revenue for this business is considerable right now, and assets turnover rate reveals that the company is enhancing their efficiency of corporate assets in generating revenue. On the other hand, Yoku does not have liquidity issue. A higher number in both Current ratio and quick ratio will result Yoku more capable to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). In addition, companies who with low profit margins tend to have high asset turnover. Yoku is one of the examples. It asset turnover seems to be relatively high recently, meaning that it makes a high profit margin on its products and it has fully use its asset on attracting advertisement. As far as efficiency with asset and receivables, the company just needs to find methods that improves advertising cost rate, keep dropping days sales outstanding. Therefore, Yoku will become one of the strong competitors in the market.