NEW YORK (TheStreet) -- Youku Tudou (YOKU) stock is spiking by 22.93% to $25.11 in early morning trading on Friday, after online retailer Alibaba (BABA) offered $3.6 billion in cash for the rest of the video site's shares.
Alibaba made a non-binding proposal to the Beijing-based company to buy the remainder of its outstanding shares for $26.60 per American depositary share, according to a statement. Alibaba already owns 18.3% of Youku Tudou.
Alibaba's bid of $26.60 per share represents 30% more than Thursday's closing price, according to Bloomberg.
Through the acquisition, Alibaba hopes to expand its digital entertainment offering, according to the statement. More than 461 million people streamed video in China as of June, and Youku had roughly 286 million unique visitors in August, Bloomberg reports.
Youku founder Victor Koo would continue to lead the company as CEO under the agreement.
Separately, TheStreet Ratings team rates YOUKU TUDOU INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
We rate YOUKU TUDOU INC (YOKU) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income and disappointing return on equity.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- YOUKU TUDOU INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, YOUKU TUDOU INC reported poor results of -$0.71 versus -$0.58 in the prior year. For the next year, the market is expecting a contraction of 898.6% in earnings (-$7.09 versus -$0.71).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 139.8% when compared to the same quarter one year ago, falling from -$22.99 million to -$55.15 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Internet Software & Services industry and the overall market, YOUKU TUDOU INC's return on equity significantly trails that of both the industry average and the S&P 500.
- 49.41% is the gross profit margin for YOUKU TUDOU INC which we consider to be strong. Regardless of YOKU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, YOKU's net profit margin of -21.24% significantly underperformed when compared to the industry average.
- Looking at where the stock is today compared to one year ago, we find that it is higher, and it has outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- You can view the full analysis from the report here: YOKU