Shares of Chinese video site Youku (NYSE:YOKU) soared on its IPO today, closing at $33.44, which is 160 percent above its offering price of $12.80. Since Youku’s 15.8 million shares of American Depository Receipts (ADRs) represent 16 percent of the total shares, the closing price gives Beijing-based Youku a market cap of roughly $3.3 billion. In other words, it is worth more than AOL (owner of TechCrunch), which has a market cap of $2.7 billion.
Earlier today, I referred to Youku as the YouTube of China, but it is more like the Hulu of China. About two thirds of the videos on YouKu are syndicated from traditional media companies in China. The company was founded in November, 2005 and the site launched in December, 2006. YouKu never really relied on user-generated content because it took longer to develop as a phenomenon in China than the U.S. “Unlike the US, we are still in the development phase for user generated content so we didn’t rely on that,” CEO Victor Koo tells me.
YouKu boasts 40 percent penetration rate among the 420 million Chinese people on the Internet, or about 200 million unique visitors a month in China (comScore estimates a smaller 78 million). Koo describes the IPO as a “graduation ceremony” in China and hopes to leverage it to extend his lead there among mainstream video sites. The company currently relies on video advertising, and recently launched a paid subscription service in beta along the lines of Hulu Plus.
“The revenue growth is certainly growing faster than user growth,” says Koo. Most of its $35 million in revenues for the first nine months of the year came from advertising, and grew 135 percent. Viewer growth is closer to 50 percent. Even with that stellar growth and huge audience, the company still lost $25 million in the first nine months of the year. The reason for this is because advertisers in China don’t value viewers as much as they do in the U.S. Part of that has to do with vast differences in disposable income, but Youku captures more and more of Chinese consumers’ time, then it should be able to eventually charge more for its advertising as well.
But the $3.3 billion valuation is based more on the idea of owning the YouTube or Hulu of China than any tangible economic results at this point. Since it has no earnings to speak of, that gives it a trading multiple of 94 times revenue. The Internet bubble has now officially been resurrected in China via the New York Stock Exchange.