Youku.com (NYSE: YOKU), no offense, but you are way overpriced. Sure, it’s fun and sexy to trade at impossible valuations when you go public, but look out below. I call them as I see them. This is like paying $1,000,000 for a new Toyota Corolla just because Paris Hilton is sitting in it. This is worse than US Treasuries. Heck, it’s my understanding that YouTube isn’t even profitable yet. Future profits are just a dream for Youku.com. How do you discount future net losses and arrive at the current valuation? Beats me.
Author’s note: If I can put in a theme song to this article, see this video here.
YOKU just went public selling around $200M in securities. That’s not bad until you realize that they’re not profitable and that comes at roughly $60M in net revenues at best this year. At $42, the company is currently trading at a valuation of $4.3B. That’s roughly 70x sales. For this company to trade at 1x earnings it would have to double in size six times in a row. Then, bless them, with a 5% net margin when they are currently operating at a 65%+ net loss (for every dollar or revenue, they lose $0.65), and it’s still more expensive than Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) --- both of which I said were good buys in October of 2008.
For those unfamiliar with stocks, Youku.com being a good value is extremely unlikely. This is similar to the valuations you’d have seen during the 2001 Nasdaq market highs. Absurd. Why would you buy this when you can get companies growing at double digits, at 1/100th of the valuation? 99% off? Does that appeal to you? It should.
The only thing that is going to make this go up is short term herd mentality. In other words, it’s a race to find someone dumber than you to sell this to at a higher price than you paid for it. As long as that works, the price may continue to rise. When that changes, look out below. As such, I’ll be sitting on the sidelines waiting for things to turn and then I’ll ride the proverbial sled down a very huge, steep hill and have a blast doing it. In the meanwhile, I'll continue to invest in what I perceive to be the most undervalued corners of the market and of the world. One thing I am certain of --- this is NOT it.
Disclosure: Bradford currently holds no position in the companies mentioned but intends to go short in the near future.