Monday, December 13, 2010

Careful about that Youku (YOKU) on your Shoe

Last week's sensation Youku (YOKU) continues to spiral back down to earth... it is now down $17 from its $50 Friday morning peak aka 34%.   That's pretty impressive work for about 1 "market day".

My "bashing" commentary last week inspired Yahoo Finance type of messages ("loser!" "idiot!" "you know nothing!") from the true believers on Seeking Alpha.... Youku doesn't have a message board yet on Yahoo Finance, so they don't have their normal spot to spend 8 hours a day swearing at each other in a display of 3rd grade testosterone.  Only in the stock market world is stating facts such as YOKU peaked at 100x sales at $50 ($5B market cap), whereas Groupon received a bid for 11-12x sales from Google ($6B market cap) that was booed by the Google investor base as too pricey considered 'bashing'.  Rather than yell at me, it would have been wise to take profits at the ridiculous prices seen Friday.  For all I know the stock goes up 20% tomorrow or down by that much - it will have nothing to do with a sensible valuation.

For a "Groupon-like" valuation of 12ish x sales [we have to use sales multiples since this is a money losing operation] we'd be giving Youku today a $600 million market cap.  Granted I don't expect the stock to ever get there - it would be a $6 stock, and the investment bankers who brought it public have a big incentive to support the price, but assuming Youku doubles sales annually the next 3 years we have

$50M in 2010
$100M in 2011
$200M in 2012
$400M in 2013 (revenues would still be smaller than Groupon has right now)

$400M in sales in 2013 x a 12 time price to sales = $4.8B market cap aka $48ish.  Otherwise known as the price last Friday.   (Groupon has $500M sales today per all accounts)

So yes Youku can "grow" into its valuation someday, but if you pay $33 today you would be waiting almost 2.5 years (mid 2013 revenue of roughly $300M assuming Youku never slows down sales and can grow 100% annum) simply to get to a value similar to what Groupon just received.  (and Youku does have competition)  I realize the 2 companies are in totally different arenas, and in different countries - just commenting on general nosebleed valuations in Internet bubble 2.0 as Ben tries to mimic Alan's Y2K game plan.  Again, none of this means the stock won't jump 20% tomorrow but it will be due to "I can find a new sucker tomorrow" theory - not reality.  For all those that point to (BIDU) as a roadmap for - after its IPO spike, Baidu did nothing for a year (actually for 5 quarters from mid 2005 to late 2006) as it 'grew' into the valuation. And the market opportunity for Baidu is far greater.... what is worth more?  Google's business or YouTube/Netflix/Hulu (or whatever magic combination you want to claim Youku is... or could be in theory)

p.s. How many DVDs has Youku mailed out to customers?  Zero?  Oops that is bashing... just remember, if you can't justify a valuation find another company Youku could be like... Netflix it is!

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