In an unusual move for a Chinese start-up company, Internet TV provider Youku.com (YOKU) has landed two deals that may help it dominate the Chinese Internet TV market. The first deal is with Time Warner (TWX) that will allow the company to distribute 500 Warner Bros movies, including “The Lord of Rigs” and ”Harry Potter.” The second deal is with DreamWorks (DWA) to distribute its two “Kung Fu Panda” movies (Wall Street Journal, 8/30/11).
Youku’s stock has suffered a big correction, together with other momentum stocks. At around $23, it is trading near 20% below its end of July price. Do these deals and a low price make Yuku.com a buy?
Company* | Business | Recent Stock price | Percent correction from the end of July |
Baidu, Inc. (BIDU) | Internet search engine | 132 | -20 (%) |
Sina Corp. (SINA) | Media and mobile value-added services | 91 | -18 |
E-Commerce China Dangdang Inc. (DANG) | Business –to-Consumer e-Commerce | 8 | -40 |
Renren Inc. (RENN) | Social Networking | 7.6 | -23 |
Youku.com (YOKU) | Internet TV | $23 | -25 |
Sohu.com Inc. (SOHU) | Brand advertising, on-line gaming | 73 | -17.50 |
Source: Yahoo.finance.com
We don’t think so. The stock has an astronomical PE, and negative operating margins - the highest among Chinese momentum companies. Besides, the company has no barriers to keep the competition off its market, and it is at the mercy of government regulators that have the tendency to change the rules too often for entrepreneurial companies.
Company* | Business | Forward PE (Dec. 2012 | Operating Margins |
Baidu, Inc. (BIDU) | Internet search engine | 30.88 | 52.18 (%) |
Sina Corp. (SINA) | Media and mobile value-added services | 51.54 | 22.30 |
E-Commerce China Dangdang Inc. (DANG) | Business –to-Consumer e-Commerce | 121.57 | 0.32 |
Renren Inc. (RENN) | Social Networking | 187.50 | 5.42 |
Youku (YOKU) | Internet TV | 1,312 | -20.41 |
Sohu.com Inc. (SOHU) | Brand advertising, on-line gaming | 13.29 | 37.50 |
*These statistics should be interpreted with caution, as Chinese accounting standards are different than those of the U.S. - so they aren't comparable with those of their U.S. counterparts like Amazon.com (AMZN) and Google (GOOG).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
