If you read the site but don’t follow me on Twitter, you’re very likely wondering why I’ve gone from at least one post/day to zero over the past week. The simple reason is because I’ve decided to undertake a much larger, more time-consuming project of attempting to value Chinese “internet television” high-flyer Youku, in response to challengers who think $4.5 billion is an entirely reasonable valuation for a company with increasingly tough competition from new and incumbent services that’s bleeding cash and losing money every year for the foreseeable future. Did I mention its a high-flying Chinese internet company, susceptible to what readers should immediately recognize is a non-zero probability of being an accounting and/or other type of fraud?
Preliminary results (read: NON CONCLUSIVE) indicate that if we assume the Youku’s financial statements are accurate – which I consider to be a bit of a leap of faith – the firm would have to grow revenues about 50% per year for the next decade while driving their costs down by about the same % to rationalize its current valuation. Is this possible? Sure, but is it likely? Most certainly not. Again, this is to say nothing of the (not unsubstantial in my opinion) discount we should apply considering the legal structure and financial/etc opacity involved.
If you want to see some of my preliminary thoughts, you can check out the Stocktwits stream and/or follow it on Market Pulse.
If you’ve been following this company and/or cover it, feel free to get in touch and we can discuss the assumptions/inputs.