Why Youku Tudou (YOKU) Is Rising Today

NEW YORK (TheStreet) -- Youku Tudou  (YOKU) was rising 12.77% to $34.80 at 11:13 a.m. EST on Friday after China's largest video Web site reported fourth-quarter earnings that surpassed analysts' expectations.

Revenue increased 42% year over year to $148.9 million, which beat the consensus estimate by 2%. GAAP earnings per share amounted to a loss of 2 cents a share, which was narrower than the consensus estimate of a 5 cents a share loss. Non-GAAP EPS was 4 cents a share and turned positive for the first time in the company's history.

Youku issued first-quarter revenue guidance of $112 million to $119 million, which is 5% below analysts' estimates. This marks a 36% year-over-year increase but a 22% quarterly decline, the largest sequential decline in the company's reporting history.

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TheStreet Ratings team rates YOUKU TUDOU INC as a "hold" with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate YOUKU TUDOU INC (YOKU) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • YOKU's very impressive revenue growth greatly exceeded the industry average of 16.5%. Since the same quarter one year prior, revenues leaped by 73.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • YOKU has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.21, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for YOUKU TUDOU INC is rather high; currently it is at 51.27%. 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 -25.49% significantly underperformed when compared to the industry average.
  • 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 140.4% when compared to the same quarter one year ago, falling from -$14.93 million to -$35.88 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. 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.
  • You can view the full analysis from the report here: YOKU Ratings Report

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