Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Youku Tudou Inc (ADR) (YOKU) Is No SINA Corp (SINA) or, Inc. (ADR) (BIDU)

China’s leading video website operator is growing and its losses are narrowing, but that may not be enough.

Youku Tudou Inc (ADR) (NYSE:YOKU) opened sharply lower this morning after capping off a strong quarter with lukewarm guidance for the current period.

Things have been clicking since Youku completed its acquisition of smaller rival Tudou this summer. Revenue in the fourth quarter clocked in at a better-than-expected $102.1 million, or 30% more than what the two companies combined for a year earlier. Youku Tudou still has some more synergies to squeeze out of the deal but its quarterly deficit shrank to $0.11 a share.

Youku Tudou Inc (ADR) (NYSE:YOKU)Analysts were expecting red ink of roughly $0.15 a share on less than $100 million in revenue.

However, then Youku Tudou Inc (ADR) (NYSE:YOKU) had the gall to publicly look ahead. The former dot-com darling is targeting $77 million to $83 million in revenue for this year’s freshman quarter, and that’s well off the $88 million that Wall Street was modeling.

Sequential slides are normal, and this is a seasonal thing. Youku itself saw its revenue decline 13% between the fourth quarter and the first quarter a year earlier. At the midpoint we’re looking at a heartier 22% sequential drop this year, but Youku Tudou Inc (ADR) (NYSE:YOKU) isn’t alone. The late arrival of the Chinese New Year this year has left most of the country’s leading Internet companies warning of substantial sequential dips.

SINA Corp (NASDAQ:SINA)‘s guidance calls for a 13% sequential downtick in revenue this quarter, and that’s given its recent moves to begin monetizing its red-hot SINA Weibo micro-blogging platform. Even the typically resilient, Inc. (ADR) (NASDAQ:BIDU) will be falling short. China’s top search engine is targeting a 4% to 7% sequential dip on the top line this quarter.

The problem for Youku Tudou is that the revenue drop is more pronounced, and that’s with every incentive to finally begin monetizing mobile usage this year.

There’s no denying that the merger of Youku and Tudou is a good thing. The combined sites now command roughly a third of China’s video streaming market. Cost savings will be realized. However, streaming video isn’t an easy gig, especially in China where the more magnetic content is commercially licensed.

Youku Tudou spent 26% of last quarter’s revenue on bandwidth costs in serving up the chunky video files and another 43% on content costs. We’re talking about a model where the gross margins are already leaner than the chunky net margins that investors find in Baidu and online gaming giant NetEase, Inc (ADR) (NASDAQ:NTES).

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.