China’s Online Video Leader Youku

According to research firm Analysys, China’s online video revenues grew 148% over the year to RMB 621 million (~$96 million) in Q3 last year. Youku, which has been called the YouTube of China, is the leader with over 22% of the market share, followed by Tudou with 16% share and Sohu with 13%. Youku launched an IPO in the U.S. in December 2010.

Youku’s Financials
Youku (NYSE:YOKU) was founded in 2006 by Victor Koo, who was the former president of Chinese Internet portal Sohu. Today, Youku offers a mix of both YouTube- and Hulu-like services by providing offerings that include not only user-generated videos but also professionally produced content. The company earns most of its revenues from online advertising.

For the recently reported quarter, revenues of RMB 197.8 million (~$30.6 million) grew 178% over the year due to 181% increase in the advertising revenues which grew to RMB 190.0 million (~$29.4 million). During the same period, net loss of RMB28.1 million (~$4.3 million) fell 55% over the year. Adjusted loss of RMB10.1 million (~$1.6 million) improved 77% over the previous year.

Analysts estimate Youku to narrow its losses further to $19.2 million this year from $30.2 million last year. During the next year, they are expected to turn profitable by reporting earnings of under $250,000.

Youku’s Expanded Offering
Earlier this year, Youku made their Premium services available to users. As part of the service, for a monthly subscription charge users can access premium titles as well as video-on-demand. A beta version of the service has been in the market since October 2010, during period the company processed more than 200,000 financial transactions. To attract more customers, Youku tied up with Warner Bros. to add 400 to 450 titles of new releases and catalog titles and tied up with DreamWorks Animations for KungFu Panda titles to be available as premium content.

In addition, they are creating their original content under Youku Original. They tied up with Philips and Dong Music and recently premiered an original movie series titles such as “Love at the Crossroads,” which was viewed 2 million times within 24 hours of its premiere.

Youku’s Mobile Offering
They also launched iKu Mini, a free desktop client that lets users access their content across multiple Internet-enabled Android-based devices. iKu Mini can also be extended as a smart remote using the latest version of the Youku client for Android that lets users browse or search for videos, and switch the display of the content among devices.

At present, China has more Internet users than the entire population of the U.S., and online video sites have huge potential. Online advertising spend contributes to 90% of online video sites’ revenues, yet it still contributes a mere 5% of overall online ad spending in China.

Youku’s stock is trading at $18.89 with a market capitalization of $2.15 billion. Since its IPO, it has touched a 52-week high of $69.95 in May of this year. The stock debuted at $12.80 a share.