IPO Preview: Is Tudou Another Youku?

Aug.14.11 | About: Tudou Holdings (TUDO)

Based in Shanghai, China, Tudou Holdings Limited (proposed symbol TUDO) scheduled a $174 million IPO with a market capitalization of $822 million at an ADS price range mid-point of $29 for Wednesday, August 17, 2011. Each ADS represents four Class B ordinary shares.

OVERVIEW -- Tudou.com, an online video site which allows Chinese users to upload, watch and share videos, had about 90.1 million registered users as of June 30, up from 78.2 million at the end of last year.

The number of monthly unique visitors to to Tudou.com increased from 50 million in December 2007 to 182 million in December 2010, and to 200 million in May 2011, according to iResearch.

VALUATION -- At the price range mid-point TUDO is valued at the same price-to-book value as YOKU, and above half the price-to-sales ratio. TUDO, however, is losing money at a faster rate than YOKU.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Annualizing March 3 mos

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

Tudou Holdings (NASDAQ:TUDO)

$822

17.1

-8

4.4

4.7

Youku (NYSE:YOKU)

$2,950

37.2

-16

4.4

4.7

Baidu.com, Inc. (NASDAQ:BIDU)

$52,680

34.9

79

30.4

31.2

Click to enlarge

YEAR-TO-DATE STOCK PRICES -- YOKU IPO’d December 7, 2010 at $12.80 and is up 96% from its IPO price. However, YOKU is off 60% from its April 19th high of $67.27. BIDU is up 57% year-to-date.

QUARTERLY RESULTS -- Quarterly results financial results are not particularly impressive. TUDO’s valuation is all about TUDO’s comparison with YOKU’s revenue and book value. TUDO’s revenue was down in the March quarter most likely due to the Chinese New Year celebrations in February.

See TUDO vaulation metrics here.

CONCLUSION -- TUDO may edge up after the IPO after market, but YOKU looks like a better way to play the online video market in China, because YOKU is losing relatively less money. Both, however, appear to be priced on the high side.

ACTUAL COMPANY NOT GOING PUBLIC -- see S-1 page 6:

  • The proposed public company Tudou Holdings Limited is based in the Cayman Islands.
  • Tudou Holdings owns 100% Starcloud Media Co, Limited, which is based in the British Virgin Islands.
  • Starcloud Media owns 100% of Star Manor Limited, which is based in Hong Kong
  • Star Manor Limited owns 100% of Resuffle Technology (Shanghai) Co, which is the actual company and is based in Shanghai, China

BUSINESS -- Tudou.com, which allows Chinese users to upload, watch and share videos, had about 90.1 million registered users as of June 30, up from 78.2 million at the end of last year. The average number of new video clips uploaded daily grew from about 23,000 in 2008 to about 47,000 in the first six months of this year.

TUDO generates revenues primarily by providing online advertising services through its Tudou.com website. These online advertising services include pre-roll or post-roll video advertisements, in-roll logos, background advertisements, banners, buttons, links and stream advertisements.

REGISTERED USERS -- Since TUDO launched its online video website in April 2005, its business has grown substantially, particularly in recent years. Registered users increased from 35.6 million as of December 31, 2008 to 78.2 million as of December 31, 2010 and further to 90.1 million as of June 30, 2011.

TUDO’s average number of new video clips uploaded daily increased from 23,000 in 2008 to 40,000 in 2010 and further to 47,000 in the six months ended June 30, 2011.

UNIQUE VISITORS -- The number of monthly unique visitors to Tudou.com increased from 50 million in December 2007 to 182 million in December 2010, and to 200 million in May 2011, according to iResearch.

ADVERTISING SERVICES -- TUDO provides other online advertising services, including event sponsorships, interactive advertising and opportunities, to purchase advertising embedded in TUDO’s content developed in-house.

TUDO provided advertising services to 170, 320 and 512 advertisers in 2008, 2009 and 2010, respectively. TUDO provided advertising services to 297 and 378 advertisers for the six months ended June 30, 2010 and 2011, respectively.

MOBILE VIDEO SERVICES -- TUDO also began generating revenues in January 2010 from mobile video services, which TUDO provides primarily through a channel on China Mobile’s wireless video platform.

Under the agreement with China Mobile, TUDO selects and provides video programs based on an assessment of mobile phone users’ preferences. Users pay a monthly subscription fee for access to the video channel or pay on a per-clip basis, and TUDO shares the fees for such services with China Mobile.

TUDO began providing mobile video services in April 2011 through two video channels on China Unicom’s wireless video platform. In addition, since the third quarter of 2010, TUDO generated revenues from sub-licensing some premium content that TUDO licensed from third party vendors.

INTELLECTUAL PROPERTY -- TUDO owns one utility model patent in China relating to a unique search engine system, and is in the process of applying for 32 additional patents to protect core technologies with respect to online video distribution and search.

COMPETITION -- Among the independent online video sites, FUDO's major competitors in China include Youku.com (YOKU) and 56.com. Several large Chinese Internet companies, such as Shanda Interactive Entertainment (NASDAQ:SNDA), SINA Corporation (NASDAQ:SINA), Baidu, Inc.(BIDU), Sohu.com Inc. (NASDAQ:SOHU), Tencent Holdings Limited (OTCPK:TCEHY) , NetEase.com, Inc. (NASDAQ:NTES) and/or their affiliates, have launched online video websites. In addition, some of China’s TV networks, such as CCTV, Phoenix Satellite TV and Hunan Satellite TV, have launched their own video sharing websites. Specifically, CCTV launched China Internet TV, or CNTV, in December 2009.

Certain international online video sites, such as YouTube and Hulu, have large content portfolios and high brand recognition, particularly among users outside China.

Currently, YouTube is not accessible by viewers in China. If China lifts the restrictions, YouTube may become the major competitor in China. Other international online video sites such as Hulu mainly target English-speaking viewers and not Chinese-speaking viewers. If such international online video sites begin targeting Chinese-speaking viewers, TUDO will face increased competition.

The online video business is capital intensive, which may become an entry barrier to some new entrants. In addition, to operate online video operations in China, a license from SARFT is required. Under current regulations issued by SARFT and MIIT in December 2007, generally only state-owned or state-controlled companies may apply for and obtain such licenses.

Companies that had already engaged in Internet audio-visual program provision services before the promulgation of such regulations are grandfathered.

TUDO obtained such license in September 2008, which was renewed in January 2010, and therefore, TUDO can continue to operate its online video business in China. However, new entrants must generally be either state-owned or state-controlled unless the Chinese government makes an exception.

USE OF PROCEEDS -- 460,000 ADS are scheduled to be sold by shareholders. TUDO itself expects to $143 million from sale of 5.540,000 shares. Proceeds are allocated to

  • US$60.0 million to fund content procurement and in-house content production;
  • US$30.0 million to fund expansion of Internet bandwidth capacity; and
  • Balance to fund working capital and for general corporate purposes, including potential acquisitions, partnerships, alliances and licensing opportunities.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.