Chinese Hulu Reaches $3.3 Billion in Valuation with IPO

Anyone owning shares in the Chinese video site YouKu are sure to be celebrating as the price soared with its IPO. According to a TechCrunch report, the shares closed at $33.44, 160 percent above its offering price of $12.80.

With YouKu’s 15.8 million shares of American Depository Receipts (ADRs) representing 16 percent of the total shares, the closing price gives the company a market cap of roughly $3.3 billion. Not bad for a day’s work. YouKu has been referred to as the YouTube of China, although some prefer the Hulu (News - Alert) of China. Roughly two thirds of the videos on YouKu are syndicated from traditional media companies in China.

Founded in November of 2005, Youku launched in December of 2006 and has never truly relied on user-generated content. As a result, it took longer to develop the phenomenon in China as compared with the U.S. CEO Victor Koo told TechCrunch that unlike the U.S., YouKu is still in the development phase for user generated content. Among the 420 million Chinese people on the Internet, YouKu has a 40 percent penetration rate. 

This represents about 200 million unique visitors a month in China alone. The IPO has been described by Koo as a graduation ceremony in China and hopes to leverage its success to extend its lead there among mainstream video sites. As the company relies on video advertising, YouKu recently launched a paid subscription service in beta, much like the Hulu Plus offered by Hulu.

One definite cause for celebration is the fact that revenue growth is faster than user growth.According to Koo, most of the $35 million for the first nine months of the year came from advertising and grew 135 percent. Viewer growth is closer to 50 percent. Even with the size of its audience and impressive growth, the company still lost $25 million in the first nine months of the year. The cause? Advertisers in China don’t value viewers as much as they do in the U.S. Plus, there are vast differences in disposable income. 

As YouKu captures more and more of Chinese consumers’ time, however, it should be able to eventually charge more for its advertising. Until then, the $3.3 billion valuation is based more on the idea of owning the YouTube (News - Alert) or Hulu of China rather than any actual tangible economic results. And, because the company has no earnings to speak of, its trading multiple is 94 times revenue.

Susan J. Campbell is a contributing editor for TMCnet and has also written for eastbiz.com. To read more of Susan’s articles, please visit her columnist page.

Edited by Juliana Kenny