What Chinese Company is Worth 60% More Than Sohu With 1/10th the Revenue?

23 May

The company is actually worth ~57% more than Sohu with 1/9th the revenue, but rounding made for a better title.  Know what company I’m thinking of?

No?
Here’s a few more hints:

  • It’s currently trading at about 60x annualized 2011 sales (4x as rich as Linkedin’s valuation)
  • Has about 1/10th as many employees as Sohu
  • Claims to be engaged in significant research & development, but only spends 8.2% of revenue on R&D while Sohu spends 12.6%

Any guesses?

Give up?

The winner is online video provider Yokou (YOKU), the most over-valued company I’ve looked at in memory.  Anyone who can explain the valuation here, please do so in the comments, because I am at a complete loss.  Sure, Yoku is a younger company with higher growth rates, but methinks investors, er “investors” are projecting triple-digit growth will increase far longer than it is likely to, and assigning a significantly lower discount rate than they should be to account for Chinese company opacity, audit, control, and legal risk.

While the stock is down significantly over the past month and a half, prudent investors should be skeptical of any firm that does a secondary offering 6 months after its IPO when the stock is up ~100%.

Expect more on YOKU in the days and weeks to come!

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2 Responses to “What Chinese Company is Worth 60% More Than Sohu With 1/10th the Revenue?”

  1. Sean May 23, 2011 at 3:14 pm #

    Well, I want to be an ass about your novice discoveries about Chinese equities, but I basically agree here. I’ve been long the “boring” Chinese internet names for a while, and am a bit sad that they’re performance has been in tight correlation with the new momentum IPOs.

    So maybe I will be a little asinine: In fairness to YOKU, your last two points aren’t exactly comparable. For the number of employees, SOHU is generating a lot of content itself, as opposed to licensing. That inflates headcount. For the R&D spend, about 50% of SOHU’s revenues come from CYOU, which requires a much higher R&D spend as a percent of revenues. For MMORPGs in China, 10-20% of revenues is much more reasonable. But good try! A few more weeks studying the other companies and you’ll be smarter than anyone on business TV talking about them.

    • The Analyst May 23, 2011 at 3:59 pm #

      Appreciate your restraint. Just starting to take a look at YOKU and the space and sharing things as I find ’em.

      1. YOKU seems to be extremely understaffed relative to their claimed popularity (assuming of course you believe it) no matter how you slice it, unless this doesn’t strike you as odd “We had approximately 223, 325 and 549 employees as of December 31, 2008, 2009 and 2010, respectively. As of March 31, 2011, we had 593 employees, including 47 in management and administration, 162 in product development, 95 in content development and 289 in sales and marketing.”

      In terms of original content, that’s something I’m going to look at in greater depth, so thank you for bringing
      that up.

      2. Curious BIDU’s R&D spend v. YOKU and even SOHU. Again, thanks for bringing that up, will have to look into it more.

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