By comparison, RENN has cash of $1.2 billion and a market cap of $1.4 billion. Effectively, money-losing RENN is valued at a tiny premium to its cash, while YOKU (which loses more money than RENN) is valued at four times cash. RENN currently trades below $4 but previously traded at $24 (a $9.4 billion market cap!) showing just how overvalued a stock can get, and just how far it can fall when investors tire of holding a "story stock" which continues to lose money.In short, YOKU could have quite a long ways to fall. If there is upside in YOKU, it will only happen when the company announces a surprise swing to profitability and positive cash flow. Given the missed expectations that have become consistent in the past, it is unlikely that we see this in the next 2 quarters. YOKU's clear strategy is to price its competitors out of the market with respect to content and over the long term that may prove to be a successful strategy. But over the short term, I suspect that investors will lose patience with companies that continue to lose money and burn cash at an excessive rate (even when their platform is exceptional such as YOKU's).
China Internet Stock Picks for 2012
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