Youku Tudou Inc. (YOKU)

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Youku Tudou, Inc. (YOKU)

Q3 2012 Earnings Call

November 30, 2012 10:00 AM ET

Executives

Ryan Cheung - Corporate Finance Director

Victor Koo - Chairman and CEO

Dele Liu - President

Michael Xu - Chief Financial Officer, SVP

Analysts

Alicia Yap - Barclays Capital

Muzhi Li - Citigroup

Jin Yoon - Nomura Holdings

Gene Munster - Piper Jaffray

Piyush Mubayi - Goldman Sachs

Tian Hou - T. H. Capital

Ming Zhao - 86Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Youku Tudou Q3 2012 earnings conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Friday, 30 November, 2012.

I'd now like to hand the conference over to your first speaker today, Mr. Mr. Ryan Cheung, Youku Corporate Finance Director. Thank you, sir, please go ahead.

Ryan Cheung

Thank you, operator, and welcome to our third quarter 2012 earnings conference call. Let me introduce the management team on the call today. 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 on sales and outlook. Dele will discuss about our target performance and contact strategy and 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 Tudou website. A replay of the call will be available on our website in a few hours.

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. Our earnings press release and this call is include discussion of certain unaudited non-GAAP financial measures, our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.yoku.com.

Before we continue, I would like to inform you that on August 23rd 2012, the company and Tudou's Holdings Limited, announced the completion of the merger between Youku and Tudou. Following the completion of the merger, Youku's name was changed from Youku, Inc. to Youku Tudou, Inc. And Tudou's financial results were consolidated in Tudou company from the date of the completion of the merger.

Due to the fact that the sales activities of Youku and Tudou were separately operated until the end of the third quarter 2012, the financial results of Youku and Tudou are separately disclosed to reflect the Company's actual operational results and performance.

In addition, comparison of Tudou's financial results with previous periods cannot be provided because the cut-off date of previous periods would not reflect a consistent basis of comparison. From the fourth quarter 2012 onwards, consolidated financials of Youku Tudou for the full periods will only be presented on a consolidated basis.

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. I'm pleased with our solid financial and operational performance in the third quarter the overall integration process with Tudou. Youku's standalone revenue growth exceeded the high end of our guidance. Despite challenging macro economic conditions, and diversion of our sales management resources, due to the merger with Tudou.

On the traffic front we are seeing robust growth in our traffic, especially from mobile devices. I'm also pleased to report that Youku standalone is profitable at the operational level, for the first time our company's history.

Let me first share some third quarter financial highlights with you. Youku's standalone revenue in the third quarter has achieved 84% year-on-year growth, exceeding the high-end of our previously provided guidance. The solid growth again shows how we continue to broaden and deepen our relationship with advertisers, coupled with Youku's strengthening monetization capability, by increase of sale-through rate and the effective CPM price.

New advertising clients came on board in the third quarter from sectors such as beverages, pharmaceuticals and retail and we see increasing number of local advertisers in the pipeline to shift their budget to online video. Pointing to our unrivaled ability of our sales team's execution and undisputed leadership, we are well-positioned to capture growing advertising budget to online video sector. More importantly, Youku has achieved profitability at the operational level for the first time in our company's history with a non-GAAP profit of RMB25.3 million. This is an important milestone for our company.

Youku's non-GAAP profitability is driven by increasing budget allocations from brand advertising due to our platform's proven advertising effectiveness and improving cost structure, particularly bandwidth and personnel related expenses. For example we have already seen bandwidth cost savings in the third quarter despite strong traffic growth, particularly from mobile devices which was largely contributed by the optimization of bandwidth infrastructure and the launch of our flash p2p technology platform.

Only about 3 months ago, we have also successfully completed the merger with Tudou on August 23rd. The combination of the number 1 and number 2 online video companies in China, is a milestone development for the future of China's internet industry and will allow us to create a scalable online video echo system, that will provide unrivaled value for advertising clients, content partners and internet users. The combined entity Youku Tudou Inc. represents a dominant leader in online video sector in China with the largest user base, most comprehensive content library, most advanced bandwidth infrastructure and most effective, monetization capability.

Read the rest of this transcript for free on seekingalpha.com