Youku.com's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Youku.com, Inc. (YOKU)

Q2 2012 Earnings Call

August 6, 2012 9:00 p.m. EDT

Executives

Ryan Cheung – Corporate Finance Director

Victor Koo – Chairman and CEO

Dele Liu – President, Board Director

Michael Xu – CFO, SVP

Analysts

Jin Yoon – Nomura Holdings

Jiong Shao – Macquarie

Gene Munster – Piper Jaffray

Dick Wei – J.P. Morgan

Alicia Yap – Barclays Capital

Henry Guo – ThinkEquity

Long Lin – Brean Murray, Carret & Co.

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2012 Youku, Inc. earnings conference call.

[Operator Instructions]. I must advise you that this conference is being recorded today, August 6, 2012.

I would now like to hand the conference over to your speaker for today, Youku Corporate Finance Director, Mr. Ryan Cheung. Sir, please go ahead.

Ryan Cheung

Thank you, operator, and welcome to our second quarter 2012 earnings conference call. Let me introduce the management team on the call tonight. They are Chairman and CEO, Victor Koo; our Board Director and President, Dele Liu; and Michael Xu, our Chief Financial Officer and Senior Vice President.

For today's agenda, Victor will kick off with an overview of our performance in Q2, key updates and outlook. Dele will walk you through the planning and transition process relating to the pending merger with Tudou. Michael will discuss the second quarter financials and then we'll open the floor for questions.

As a reminder, the financial results and webcast of this conference call are all available at the Investor Relations section of the Youku website. A replay of the call will be available on our website in a few hours.

Before we continue, I refer you to our Safe Harbor Statement in our earnings press release which applies to this call as we will make forward-looking statements. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in renminbi.

Let me now turn the call over to our Chairman and CEO, Victor Koo. Please proceed.

Victor Koo

Thank you, Ryan. Good morning and good evening, everyone. Thank you for joining us.

First of all, congratulations to both Dele and Michael on their promotions.

Now let me give you our highlights for the second quarter. During the second quarter of 2012, we recorded another quarter of solid growth in our operation and financial results. Youku continues to be the number one online video platform in China across unique visitors, user time spent and video views, and the recognition of this undisputed leadership from brand advertisers [built a] solid top-line increase with close to triple-digit year-on-year growth in the second quarter despite challenging macroeconomic conditions.

Online video industry continues to experience a high growth rate and we are determined to nourish this space with proactive investment in our content, brand, product and technology innovation to continue to drive the scale of our platform. The pending merger with Tudou and the smooth transition period to date will position us on the number one and number two online websites and brands in China, which will further accelerate our virtuous cycle online video industry rationalization, and increase our scalability that will lead to profitable growth as we believe scale is central to the success of our business model.

Broadening and deepening the relationship with our users and advertisers have always been our strategic priority. And in Q2 2012, we continue to make solid progress on these fronts. This points to our unrivaled execution ability and understanding of our users and advertisers' demand to further grow our traffic and revenue.

On the user front, the total internet population in China is now 538 million while watching video on internet has become the most used functionality, with the broadest coverage and longest user time spent by Chinese internet users ahead of search according to iResearch. There are strong functionality for users to watch online video in China and we see there's room for our traffic to further grow, driven by the overall increase in Chinese internet users, easier accessibility for users with more internet-enabled devices, improved products and network infrastructure, as well as enriching our content library to fulfill users' increasing demand of video content.

By focusing on our user experience and continue to elevate our brand as the one-stop shop for internet users to find and watch videos for any internet-enabled devices, we will always benefit from capturing growth areas from the online video sector. Youku continues to be the number one in online video platform across all matrices and is ranked the third largest internet property in China currently and will rank the second after the pending combination of Tudou in terms of user time spent according to iResearch.

In addition, the coverage of Chinese internet users by our platform is already ranked as one of the top five amongst all the Chinese internet properties according to iResearch. The breadth of our coverage will be further strengthened and the combined traffic lead over our competitors will be further widened with the pending merger with Tudou.

Youku's traffic growth in the second quarter remains solid with user time spent increased 28% as compared to the corresponding period in 2011, according to iResearch. This does not include traffic growth from installed applications on mobile devices, internet café and videos viewed outside Youku URL. According to internal traffic data, our installed iOS and Android applications increased more than two times when compared with the beginning of this year, while our total video views from mobile devices in the second quarter increased about 77% when compared with the first quarter. Counting these traffic from both inside and outside Youku URL, we continue to have solid traffic growth above industry average. Starting into the second half of 2012, we anticipate to see solid traffic growth as we are starting to see the benefits of the pending merger starting to materialize, as well as several high-quality content we purchased last year, are scheduled to be shown on our platform later this year.

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