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Youku.com Announces Unaudited Second Quarter 2011 Financial Results
Aug 08, 2011 (05:08 PM EDT)


Net Revenues Increased by 178% Year-over-Year

BEIJING, Aug. 8, 2011 /PRNewswire-Asia/ -- Youku.com Inc. (NYSE: YOKU), China's leading Internet television company ("Youku" or the "Company"), today announced its unaudited financial results for the second quarter ended June 30, 2011.

Second Quarter 2011 Highlights (1)

  • Net revenues were RMB197.8 million (US$30.6 million), a 178% increase from the corresponding period in 2010.(2)
  • Gross profit was RMB52.9 million (US$8.2 million), compared to a gross loss of RMB11.5 million (US$1.8 million) for the corresponding period in 2010.
  • Net loss was RMB28.1 million (US$4.3 million), a 55% decrease relative to the corresponding period in 2010.
  • Adjusted EBITDA loss (non-GAAP financial measure) was RMB10.1 million (US$1.6 million), compared to an adjusted EBITDA loss of RMB44.3 million (US$6.9 million) for the corresponding period in 2010, or a 77% improvement relative to the corresponding period in 2010.

(1) The reporting currency of the Company is Renminbi ("RMB"), but for the convenience of the reader, the amounts presented throughout the release are in US dollars ("US$"). Unless otherwise noted, all conversions from RMB to US$ are made at a rate of RMB6.4635 to US$1.00, the effective noon buying rate as of June 30, 2011 in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.

(2) The Company's net revenues are presented net of commissions earned by third-party advertising agencies, which amounted to RMB43.4 million (US$6.7 million) in the second quarter of 2011 and RMB15.6 million (US$2.4 million) in the corresponding period in 2010.



"Strong traffic growth, heightened brand preference and strong execution by the team resulted in another solid quarter of revenue growth for Youku," said Victor Koo, Chairman and Chief Executive Officer of Youku. "We remain focused on enhancing user experience and, as a result, we are driving a virtuous cycle of self-reinforcing growth where factors such as higher revenue, more aggressive investment in content and technology, and growing user traffic strengthen each other. This virtuous cycle continues to expand our leadership position in the Internet television space in China. We have never been more confident about our long term potential," Mr. Koo added.

Dele Liu, Senior Vice President and Chief Financial Officer of Youku, commented, "We are excited to see continued top line growth and improved economics. Comprehensive content library, high streaming speed, and economies of scale are driving our growth. The recent follow-on offering gives us a stronger balance sheet to help the Company invest more in our future growth."

Second Quarter 2011 Results

Net revenues were RMB197.8 million (US$30.6 million) in the second quarter of 2011, representing a 178% increase from the corresponding period in 2010 and exceeding the high end of the revenue guidance previously announced by the Company by 18%. The significant increase in net revenues was mainly due to the strong performance of brand advertising revenues, which amounted to RMB190.0 million (US$29.4 million) in the second quarter of 2011, representing a 181% increase from the corresponding period in 2010. This growth was primarily attributable to the increased average revenue per advertiser and increased number of advertisers.

Bandwidth costs as a component of cost of revenues were RMB66.3 million (US$10.3 million) in the second quarter of 2011, representing 33% of net revenues, down from 65% in the corresponding period in 2010.

Content costs as a component of cost of revenues were RMB49.5 million (US$7.7 million) in the second quarter of 2011, representing 25% of net revenues in the same period, compared to 26% in the corresponding period in 2010. Based on a new quarter of traffic data of TV serial dramas, we have adjusted our accounting estimates regarding the pattern of the benefits that we derive from our licensed TV serial dramas, resulting in a larger extent of amortization of costs on an accelerated basis. Of the RMB49.5 million (US$7.7 million) content costs, RMB43.2 million (US$6.7 million), or 22% of net revenues, was incurred in the second quarter of 2011 using the newly adjusted amortization estimates and RMB6.3 million (US$1.0 million), or 3% of net revenues, relates to the adjustment to the accumulated amortization of TV serial dramas acquired prior to second quarter 2011 using the new amortization estimates of TV serial dramas. If the Company had continued using the accounting estimates adopted in the first quarter of 2011 for amortizing content costs, RMB40.2 million (US$6.2 million), or 20% of net revenues, would have been recorded in the second quarter of 2011.

Gross profit was RMB52.9 million (US$8.2 million) in the second quarter of 2011, compared to a gross loss of RMB11.5 million (US$1.8 million) for the corresponding period in 2010. The significant increase in gross profit was mainly due to increased revenues from brand advertising services and was partially offset by an increased cost of revenues as described in the preceding paragraphs pertaining to bandwidth and content costs.

Operating expenses were RMB80.7 million (US$12.5 million) in the second quarter of 2011, an increase of 76% compared to RMB45.9 million (US$7.1 million) in the corresponding period in 2010. The increase was primarily due to increases in all of the operating expense line items as a result of the substantial growth of our business.

Operating loss was RMB27.8 million (US$4.3 million) in the second quarter of 2011, representing a 52% decrease relative to the corresponding period in 2010. The improvement was mainly due to the significant increase in gross profit as noted above.

Net loss was RMB28.1 million (US$4.3 million) in the second quarter of 2011, representing a 55% decrease relative to the corresponding period in 2010. Basic and diluted loss per ADS, each ADS representing 18 of our Class A ordinary shares, for the second quarter of 2011 amounted to RMB0.26 (US$0.04) and RMB0.26 (US$0.04), respectively.

Adjusted net loss (non-GAAP financial measure), which is herein defined as net loss excluding share-based compensation expenses and change in fair value of warrant liability, was RMB20.8 million (US$3.2 million) in the second quarter of 2011, or a decrease of 63% relative to corresponding period in 2010.

Adjusted EBITDA loss (non-GAAP financial measure), which is herein defined as net loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for change in fair value of warrant liability, share-based compensation expenses and other non-operating items, was RMB10.1 million (US$1.6 million) for the second quarter of 2011, or a decrease of 77% relative to the corresponding period in 2010. Excluding the current quarter true-up charge relating to the estimations in content amortization, the adjusted EBITDA loss would be RMB0.8 million (US$0.12 million).

Business Outlook

For the third quarter of 2011, the Company expects year-on-year growth in net revenues of 110% to 120%. This forecast reflects the Company's current and preliminary view, which is subject to change.

Conference Call Information

Youku's management will host an earnings conference call at 9:00 p.m. U.S. Eastern Time on August 8, 2011 (9:00 a.m. Beijing/Hong Kong Time on August 9, 2011).

Interested parties may participate in the conference call by dialing one of the following numbers below and entering passcode Youku# (i.e., 96858#) starting 10-15 minutes prior to the beginning of the call.

US Toll Free Dial In:

1-866-700-6293

US Toll / International Dial In:

1-617-213-8835

China Toll:

86-400-881-1629/30

China (Telecom) Toll Free:

10-800-130-0399/120-2655

Hong Kong Toll / International Dial In:

852-3002-1672



A replay of the call will be available by dialing 1-888-286-8010 (international 1-617-801-6888), and entering passcode 41011255#. The replay will be available through August 19, 2011.

This call will be webcast live and the replay will be available for 12 months. Both will be available on the Investor Relations section of Youku's corporate website at http://ir.youku.com.

Filing of Annual Report on Form 20-F

On June 10, 2011, the Company filed its annual report on Form 20-F that includes its audited financial statements for three years ended December 31, 2010 with the Securities and Exchange Commission. The annual report is available on the Company's website at http://ir.youku.com. Holders of the Company's securities may request a hard copy of the Company's annual report free of charge.

About Youku

Youku.com Inc. is China's leading Internet television company. Our Internet television platform enables users to search, view and share high-quality video content quickly and easily across multiple devices. Youku, which stands for "what's best and what's cool" in Chinese, is the most recognized online video brand in China.  Youku's American depositary shares, each representing 18 of our Class A ordinary shares, are traded on NYSE under the symbol "YOKU".

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Youku's strategic and operational plans, contain forward-looking statements. Youku may also make written or oral forward-looking statements in its filings with the U.S. Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Youku's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our goals and strategies; our future business development, financial condition and results of operations; the expected growth of the online video market in China; our expectations regarding demand for and market acceptance of our services; our expectations regarding the retention and strengthening of our relationships with key advertisers and customers; our plans to enhance user experience, infrastructure and service offerings; competition in our industry in China; and relevant government policies and regulations relating to our industry. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Youku does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Youku's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Youku uses the following measures defined as non-GAAP financial measures by the SEC in evaluating its business: adjusted net loss and adjusted EBITDA loss.  We define adjusted net loss as net loss excluding share-based compensation expenses and change in fair value of warrant liability. We define adjusted EBITDA loss as net income or loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for change in fair value of warrant liability, share-based compensation expenses and other non-operating items. We present non-GAAP financial measures because they are used by our management to evaluate our operating performance. We also believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our consolidated results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP financial measures" at the end of this release.

For more information, please contact:


Investor Relations:


Ryan Cheung

Corporate Finance Director

Youku.com Inc.

Tel: (+8610) 5885-1881 x6090

Email: ryan.cheung@youku.com


Caroline Straathof

IR Inside

Tel: (+31) 6-54624301

Email: caroline.straathof@irinside.com



YOUKU.COM INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except for number of shares and ADS and per share and per ADS data)



December 31,


June 30


June 30




2010


2011


2011




RMB


RMB


US$

ASSETS




(Unaudited)


(Unaudited)









Current assets:








Cash and cash equivalents


1,811,423


2,806,562


434,217


Short-term investments


-


1,231,620


190,550


Accounts receivable, net


216,245


278,644


43,110


Intangible assets


10,230


14,171


2,192


Prepayments and other assets


25,187


10,226


1,583

Total current assets


2,063,085


4,341,223


671,652









Non-current assets:








Property and equipment, net


64,177


74,216


11,482


Intangible assets


57,550


84,067


13,006


Capitalized content production costs


-


1,349


209


Prepayments and other assets


5,356


117,229


18,137

Total non-current assets


127,083


276,861


42,834









TOTAL ASSETS


2,190,168


4,618,084


714,486









LIABIILITIES AND SHAREHOLDERS' EQUITY















Current liabilities:








Accounts payable


35,641


44,824


6,935


Advances from customers


1,304


724


112


Accrued expenses and other liabilities


201,100


224,890


34,793


Current portion of long-term debt


22,180


12,502


1,934

Total current liabilities


260,225


282,940


43,774









Non-current liabilities:








Long-term debt


18,455


13,133


2,032

Total non-current liabilities


18,455


13,133


2,032









Total liabilities


278,680


296,073


45,806









Commitments and contingencies















Shareholders' equity:








Class A Ordinary Shares (US$0.00001 par value, 9,340,238,793
authorized, 1,235,761,996 and 1,390,732,569 issued and
outstanding as of December 31, 2010 and June 30, 2011,
respectively)


82


92


14


Class B Ordinary Shares (US$0.00001 par value, 659,761,207
authorized, 659,761,207 issued and outstanding as of
December 31, 2010 and June 30, 2011)


49


49


8


Additional paid-in capital


2,625,250


5,147,317


796,367


Accumulated deficit


(699,540)


(774,556)


(119,835)


Accumulated other comprehensive loss


(14,353)


(50,891)


(7,874)

Total shareholders' equity


1,911,488


4,322,011


668,680









TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY


2,190,168


4,618,084


714,486



YOUKU.COM INC.  

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except for  number of shares and ADS and per share and per ADS data)



 For the Three Months Ended, 


For the Six Months Ended, 



June 30,


March 31,


June 30,


June 30,


June 30,


June 30,


June 30,



2010


2011


2011


2011


2010


2011


2011



RMB


RMB


RMB


US$


RMB


RMB


US$



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)
















Net revenues 


71,203


127,991


197,853


30,611


119,816


325,844


50,412
















Cost of revenues (Note 1)


(82,738)


(113,971)


(144,945)


(22,425)


(149,665)


(258,916)


(40,058)
















Gross (loss) profit


(11,535)


14,020


52,908


8,186


(29,849)


66,928


10,354
















Operating expenses:















        Product development


(6,702)


(10,594)


(14,192)


(2,196)


(12,436)


(24,786)


(3,835)

        Sales and marketing


(32,786)


(36,669)


(52,732)


(8,158)


(52,988)


(89,401)


(13,832)

       General and administrative


(6,378)


(12,574)


(13,759)


(2,129)


(11,474)


(26,333)


(4,074)

Total operating expenses


(45,866)


(59,837)


(80,683)


(12,483)


(76,898)


(140,520)


(21,741)
















Loss from operations


(57,401)


(45,817)


(27,775)


(4,297)


(106,747)


(73,592)


(11,387)
















Interest income


584


1,056


3,190


494


803


4,246


657

Interest expenses


(1,043)


(2,155)


(1,801)


(279)


(2,446)


(3,956)


(612)

Change in fair value of warrant liability


(4,808)


-


-


-


(5,556)


-


-

Other, net


30


-


(1,714)


(265)


107


(1,714)


(265)

Total other income (expenses), net                     


(5,237)


(1,099)


(325)


(50)


(7,092)


(1,424)


(220)
















Loss before income taxes


(62,638)


(46,916)


(28,100)


(4,347)


(113,839)


(75,016)


(11,607)

Income taxes


-


-


-


-


-


-


-
















Net loss


(62,638)


(46,916)


(28,100)


(4,347)


(113,839)


(75,016)


(11,607)
















Net loss per share, basic and diluted


(0.17)


(0.02)


(0.01)


*


(0.31)


(0.04)


(0.01)

Net loss per ADS, basic and diluted


(3.08)


(0.45)


(0.26)


(0.04)


(5.60)


(0.70)


(0.11)

Shares used in computation, basic and diluted


365,664,581


1,896,366,490


1,966,651,063


1,966,651,063


365,648,331


1,931,702,933


1,931,702,933

ADS used in computation, basic and diluted


20,314,698


105,353,694


109,258,392


109,258,392


20,313,796


107,316,829


107,316,829



The accompanying notes are an integral part of the press release





























Note 1. Cost of Revenues

 For the Three Months Ended, 


For the Six Months Ended, 


June 30,


March 31,


June 30,


June 30,


June 30,


June 30,


June 30,


2010


2011


2011


2011


2010


2011


2011

(Amounts in thousands)

RMB


RMB


RMB


US$


RMB


RMB


US$


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

 Cost of revenues: 














 Business tax and surcharges 

(8,375)


(12,392)


(20,241)


(3,131)


(13,441)


(32,633)


(5,049)

 Bandwidth costs 

(45,985)


(56,325)


(66,251)


(10,250)


(89,783)


(122,576)


(18,964)

 Depreciation of servers and other equipment         

(9,950)


(9,112)


(8,919)


(1,380)


(19,692)


(18,031)


(2,790)

 Content costs 

(18,428)


(36,142)


(49,534)


(7,664)


(26,749)


(85,676)


(13,255)

 Total Cost of Revenues 

(82,738)


(113,971)


(144,945)


(22,425)


(149,665)


(258,916)


(40,058)



YOUKU.COM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, except for  number of shares and ADS and per share and per ADS data)





 For the Three Months Ended, 





June 30,


March 31,


June 30,


June 30,





2010


2011


2011


2011





RMB


RMB


RMB


US$





(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Cash flows from operating activities:










Net loss



(62,638)


(46,916)


(28,100)


(4,347)

Adjustments to reconcile net loss to net cash used in operating activities:











Depreciation



11,034


10,525


10,358


1,603


Bad debt expense



379


732


(279)


(43)


Amortization of intangible assets and self produced contents



10,229


26,523


35,390


5,475


Accretion of long-term debt discounts



176


1,017


923


143


Gain on disposal of  property and equipment



-


-


(7)


(1)


Foreign exchange loss



-


-


1,644


254


Share-based compensation



2,095


5,374


7,278


1,126


Change in fair value of warrant liability



4,808


-


-


-


Change in operating assets and liabilities:











       Accounts receivable



(41,986)


23,261


(86,113)


(13,323)


       Prepayments and other assets



(3,862)


(2,965)


(4,776)


(739)


       Capitalized content production costs



-


(123)


(1,745)


(270)


       Accounts payable



4,403


250


(502)


(78)


       Advances from customers



854


875


(1,455)


(225)


       Accrued expenses and other liabilities



27,771


(29,935)


62,204


9,624

Net cash used in operating activities



(46,737)


(11,382)


(5,180)


(801)












Cash flows from investing activities:











Acquisition of property and equipment



(5,457)


(13,474)


(18,878)


(2,921)


Deposit for acquisition of equity interest



(1,707)


-


-


-


Purchase of short-term investments



-


(65,059)


(1,164,888)


(180,226)


Proceeds from disposal of property and equipment



-


-


8


1


Acquisition of intangible assets



(26,387)


(41,678)


(144,156)


(22,303)

Net cash used in investing activities



(33,551)


(120,211)


(1,327,914)


(205,449)












Cash flows from financing activities:











Exercise of employee stock options



31


-


1,025


159


Principal repayments on long-term debt



(6,106)


(9,366)


(7,406)


(1,146)


Debt commitment fee paid



(272)


-


-


-


Reimbursement of issuance costs from third parties, net



-


4,781


-


-


Proceeds from follow-on offering, net of issuance costs



-


-


2,508,974


388,176

Net cash (used in) provided by financing activities



(6,347)


(4,585)


2,502,593


387,189

Effect of exchange rate changes on cash and cash equivalents



(76)


(15,380)


(22,802)


(3,528)

Net (decrease) increase in cash and cash equivalents



(86,711)


(151,558)


1,146,697


177,411

Cash and cash equivalents at the beginning of the period



198,035


1,811,423


1,659,865


256,806

Cash and cash equivalents at the end of the period



111,324


1,659,865


2,806,562


434,217



Reconciliations of Non-GAAP results of operations measures to the nearest comparable GAAP financial measures (*) (Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$"),unaudited)

















 1. Adjusted Net Loss



 For the Three Months Ended, 


For the Six Months Ended, 




June 30,


March 31,


June 30,


June 30,


June 30,


June 30,


June 30,




2010


2011


2011


2011


2010


2011


2011




RMB


RMB


RMB


US$


RMB


RMB


US$

 Net loss   



(62,638)


(46,916)


(28,100)


(4,347)


(113,839)


(75,016)


(11,607)

 Add back: share-based compensation  



2,095


5,374


7,278


1,126


3,959


12,652


1,957

 Add back: change in warrant liability
   



4,808


-


-


-


5,556


-


-

 Adjusted net loss 



(55,735)


(41,542)


(20,822)


(3,221)


(104,324)


(62,364)


(9,650)



































2. Adjusted EBITDA Loss



 For the Three Months Ended, 


For the Six Months Ended, 




June 30,


March 31,


June 30,


June 30,


June 30,


June 30,


June 30,




2010


2011


2011


2011


2010


2011


2011




RMB


RMB


RMB


US$


RMB


RMB


US$

Net loss                                                                     



(62,638)


(46,916)


(28,100)


(4,347)


(113,839)


(75,016)


(11,607)

 Add back: 
















 Depreciation and amortization (excluding 
amortization of purchased content)** 



11,034


10,540


10,373


1,605


21,542


20,913


3,236

 Interest income 



(584)


(1,056)


(3,190)


(494)


(803)


(4,246)


(657)

 Interest expenses 



1,043


2,155


1,801


279


2,446


3,956


612

 Income taxes 



-


-


-


-


-


-


-

 EBITDA Loss 



(51,145)


(35,277)


(19,116)


(2,957)


(90,654)


(54,393)


(8,416)

















 Adjustments: 
















 Share-based compensation  



2,095


5,374


7,278


1,126


3,959


12,652


1,957

 Change in fair value of warrant liability 



4,808


-


-


-


5,556


-


-

 Others, net 



(30)


-


1,714


265


(107)


1,714


265

Adjusted EBITDA Loss



(44,272)


(29,903)


(10,124)


(1,566)


(81,246)


(40,027)


(6,194)

































*For more information on the Non-GAAP financial measures, please see the section captioned “About Non-GAAP Financial Measures” in this earnings release.


**The amortization expense was related to advertising license acquired in April 2010. The amortization of licensed content was not included in Non-GAAP financial measures we disclose in our annual report Form 20-F we filed on June 10, 2011.



SOURCE Youku.com Inc.