Youku Tudou, China’s top online video service, misses Q1 2013 estimates on increased costs post-merger

Youku Tudou, the Chinese online video company formed when its billion dollar merger closed last August, has missed estimates with its Q1 2013 financial report, despite consolidating some shared costs.

The company recorded a loss of RMB 1.42 ($0.23) per ADS, coming in under analyst expectation of a loss of 1.39 per ADS. That’s despite revenue surpassing estimates of RMB 510.49 million ($8.3 million).

Revenue for the three-month period was RMB 516.0 million ($83.1 million), which the company says is a 21 percent increase from the pro forma combined revenues that the companies made — while separate — in Q1 2012. The company reported Q1 2013 losses of RMB 232.5 million ($37.4 million), which is a 12 percent improvent on the combined RMB265.5 million ($42.7 million) posted during the same period last year.

The company also released new user metrics. It now has more than 100 million active monthly users, sees more than 170 million daily video views, with each user spending more than 70 minutes on the site.

One of the main reasons for the merger was to consolidate each company’s costs, for expenses such as bandwidth and content deals. In that respect, the RMB 161.0 million ($25.9 million) spent on bandwidth represented 31 percent of the consolidated net revenues. That’s an improvement on 43 percent pro forma in Q1 2012.

However, the cost of product development rose to RMB 56.8 million ($9.2 million) from RMB 48.1 million (US$7.7 million) a year prior; while general expenses rose to RMB 83.4 million ($13.4 million) from RMB 71.8 million ($11.6 million).

A statement from Victor Koo, Chairman and Chief Executive Officer of Youku Tudou, read:

I am pleased with our progress. We are in the final phase of the merger integration process with Tudou and have completed the restructuring of our sales team in the first quarter. Our combined sales team is positively impacting demand and our increased scale is helping us to optimize our cost structure.

Dele Liu, President of Youku Tudou, furthered explained the firm would continue to focus on in-house, user-generated and licensed content for the service.

While these financial details provide an insight into the progress of the now-merged firm in the past year, the data that Q1 2013 is being compared to is taken from before the deal was announced. A more accurate picture of progress will come after August, when the previous year’s figures will take into account the business post-merger.

The company estimates net revenues of between RMB720 million and RMB770 million ($117 million and $125 million) in the next quarter. Consolidated advertising net revenues are estimated at between RMB700 million and RMB740 million ($114 million and $120 million).

Competition is about to get considerably tougher for Youku Tudou, following Baidu’s acquisition of PPS Video for $370 million.

Baidu claims that — in combining its iQiyi service with PPS — it is now China’s top video platform on mobile. However, data from Analysys — covering all devices — gives Youku-Tudou a 30.2 percent share of China’s online video market, followed by Sohu on 10.3 percent, iQiyi on 9.7 percent and PPS on 7.1 percent.

Headline image via Spencer Platt /Getty Images