Youku Tudou Announces Third Quarter 2013 Unaudited Financial Results

BEIJING, Nov. 14, 2013 /PRNewswire/ -- Youku Tudou Inc. (NYSE: YOKU, and formerly Youku Inc. or "Youku"), China's leading Internet television company ("Youku Tudou" or the "Company"), today announced its unaudited financial results for the third quarter 2013.

Basis of Presentation

On August 23, 2012, the Company and Tudou Holdings Limited ("Tudou") announced the completion of the merger between Youku and Tudou. Following the completion of the merger, Tudou's financial results were consolidated into the Company. Based on Youku's review with Tudou management of Tudou's publicly disclosed summary of significant accounting policies prior to the merger, certain adjustments to the historical statement of operations have been made to conform its accounting policies to those of Youku's. Due to the fact that Tudou's historical statements of operations for the third quarter of 2012 consist of stand-alone historical financial information without these adjustments for the period from July 1, 2012 to August 22, 2012, and consolidated financial information with these adjustment for the period from August 23, 2012 to September 30, 2012, we do not believe that comparison of the Company's financial results with the corresponding period in 2012 can be provided on a consistent basis. For ease of reference only, we present comparison of our financial results for the third quarter of 2013 and those of the second quarter of 2013 in this press release for this quarter. We would like to draw your attention to the seasonal nature of our operations and quarter-to-quarter fluctuations. Please refer to Item 3.D Key Information—Risk Factors and Item 5 Operating and Financial review and Prospects of the Company's 2012 annual report on Form 20-F.

Third Quarter Highlights[1]

• Net revenues were RMB857.7 million (US$140.2 million), a 14% increase quarter over quarter.
• Our accumulated traffic data of TV serial dramas and movies reflected a new consumption pattern and we have adjusted our accounting estimates on content costs amortization accordingly.  This resulted in further acceleration of content costs amortization starting from the third quarter of 2013. If we had not adopted the newly adjusted amortization estimates, non-GAAP content costs of RMB334.1 million (US$54.6 million), or 39% of net revenues, would have been recorded in the third quarter of 2013, which is RMB144.2 million (US$23.6 million) lower than the reported figures.
• Gross profit was RMB82.3 million (US$13.4 million). Non-GAAP gross profit, which is herein defined as gross profit excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to user generated content, was RMB100.4 million (US$16.4 million). If we had not adopted the newly adjusted amortization estimates, a non-GAAP gross profit of RMB244.6 million (US$40.0 million), a 20% increase quarter over quarter, or 29% of net revenues, would have been recorded in the third quarter of 2013, which is RMB144.2 million (US$23.6 million) higher than the reported figures.
• Net loss was RMB218.6 million (US$35.7million). Non-GAAP net loss, which is herein defined as consolidated net loss excluding share-based compensation expenses, amortization of intangible assets from business combination, and business combination related expenses, was RMB159.6 million (US$26.1 million). If we had not adopted the newly adjusted amortization estimates, a non-GAAP net loss of RMB15.4 million (US$2.5 million), a decrease of 65% quarter over quarter, would have been recorded in the third quarter of 2013, which is RMB144.2 million (US$23.6 million) lower than the reported figures.
• Basic and diluted loss per ADS, each representing 18 Class A ordinary shares, amounted to RMB1.31 (US$0.21) and RMB1.31 (US$0.21), respectively.
• Cash, cash equivalents, restricted cash and short-term investments totaled RMB3.2 billion (US$523.5 million) as of September 30, 2013.
• Acquisition of property and equipment was RMB67.3 million (US$11.0 million).
• Acquisition of intangible assets was RMB171.6 million (US$28.0 million).

"We are happy that we grew the topline by a strong 14% quarter over quarter and our mobile traffic surged to over 300 million video views per day. We will continue to drive mobile monetization and ramp up revenue from local advertising clients, content marketing solutions and paid services," said Victor Koo, Chairman and Chief Executive Officer of Youku Tudou. "We expect that Youku Tudou will be non-GAAP profitable in the fourth quarter of 2013 after Youku on a stand-alone basis reached the same financial milestone in third quarter of 2012, demonstrating the success of the Youku Tudou merger and solid execution by the team."

Dele Liu, President of Youku Tudou, added, "We achieved further economies-of-scale for the group resulting in a significant narrowing of our loss at the operational level. We were able to control costs as we further leveraged the scale of our platform and in-house production capabilities. Our earlier decision to build an ecosystem for Original and User Generated Content (UGC) has continued to pay off." 

Third Quarter 2013 Results

Net revenues were RMB857.7 million (US$140.2 million) in the third quarter of 2013, a 14% increase quarter over quarter and meeting the net revenues guidance previously announced by the Company. Advertising net revenues were RMB745.0 million (US$121.7 million), a 3% increase quarter over quarter and meeting the advertising net revenues guidance previously announced by the Company. The growth was primarily attributable to the increased use by brand advertisers of our advertising services as evidenced by an increase in the number of advertisers and the rising average spend per advertiser.

Bandwidth costs as a component of cost of revenues were RMB181.7 million (US$29.7 million) in the third quarter of 2013, representing 21% of the net revenues, as compared to RMB164.1 million (US$26.8 million) in the second quarter in 2013, representing 22% of net revenues of that quarter.

Content costs as a component of cost of revenues were RMB496.5 million (US$81.1 million) in the third quarter of 2013. Non-GAAP content costs, which is herein defined as content costs excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to user generated content, were RMB478.3 million (US$78.2 million) in the third quarter of 2013, representing 56% of net revenues. Our accumulated traffic data of TV serial dramas and movies reflected a new consumption pattern and we have adjusted our accounting estimates on content costs amortization accordingly.  This resulted in further acceleration of content costs amortization starting from the third quarter of 2013. If we had not adopted the newly adjusted amortization estimates, non-GAAP content costs of RMB334.1 million (US$54.6 million), or 39% of net revenues, would have been recorded in the third quarter of 2013, which is RMB144.2 million (US$23.6 million) lower than the reported figures.

Gross profit was RMB82.3 million (US$13.4 million) in the third quarter of 2013. Non-GAAP gross profit was RMB100.4 million (US$16.4 million) in the third quarter of 2013. If we had not adopted the newly adjusted amortization estimates, a non-GAAP gross profit of RMB244.6 million (US$40.0 million), a 20% increase quarter over quarter, or 29% of net revenues, would have been recorded in the third quarter of 2013, which is RMB144.2 million (US$23.6 million) higher than the reported figures.

Operating expenses were RMB312.8 million (US$51.1 million) in the third quarter of 2013, as compared to RMB306.8 million (US$50.1 million) in the second quarter of 2013. Non-GAAP operating expenses, which is herein defined as operating expenses excluding share-based compensation expenses, business combination related expenses and amortization of intangible assets from business combination in relation to customer relationship, technology and non-compete provisions, were RMB271.9 million (US$44.4 million) in the third quarter of 2013, a 4% increase compared to RMB260.6 million (US$42.6 million) in the second quarter of 2013. Detailed discussion of each component of operating expenses is as follows:

Sales and marketing expenses were RMB171.8 million (US$28.1 million) in the third quarter of 2013, as compared to RMB165.2 million (US$27.0 million) in the second quarter of 2013. Non-GAAP sales and marketing expenses, which is herein defined as sales and marketing expenses excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to customer relationship, were RMB157.3 million (US$25.7 million) in the third quarter of 2013, a 5% increase compared to RMB150.4 million (US$24.6 million) in the second quarter of 2013.

Product development expenses were RMB78.6 million (US$12.8 million) in the third quarter of 2013, as compared to RMB66.1 million (US$10.8 million) in the second quarter of 2013.  Non-GAAP product development expenses, which is herein defined as product development expenses excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to technology, were RMB67.5 million (US$11.0 million) in the third quarter of 2013, a 23% increase compared to RMB54.8 million (US$9.0 million) in the second quarter of 2013. This increase was primarily due to higher personnel related expenses for our product development in mobile, search, social and paid-services.

General and administrative expenses were RMB62.5 million (US$10.2 million) in the third quarter of 2013, as compared to RMB75.6 million (US$12.4 million) in the second quarter of 2013. Non-GAAP general and administrative expenses, which is herein defined as general and administrative expenses excluding share-based compensation expenses, business combination related expenses and amortization of intangible assets from business combination in relation to non-compete provisions, were RMB47.1 million (US$7.7 million) in the third quarter of 2013, a 15% decrease compared to RMB55.4 million (US$9.1 million) in the second quarter of 2013.

Net loss was RMB218.6 million (US$35.7 million) in the third quarter of 2013. Non-GAAP net loss was RMB159.6 million (US$26.1 million) in the third quarter of 2013. If we had not adopted the newly adjusted amortization estimates, a non-GAAP net loss of RMB15.4 million (US$2.5 million), a decrease of 65% quarter over quarter, would have been recorded in the third quarter of 2013, which is RMB144.2 million (US$23.6 million) lower than the reported figures.

Non-GAAP EBITDA Loss, which is herein defined as net loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for share-based compensation expenses, amortization of intangible assets from business combination, business combination related expenses and other non-operating items, was RMB141.1 million (US$23.1 million) in the third quarter of 2013, as compared to a non-GAAP EBITDA loss of 28.7 million (US$4.7 million) in the second quarter of 2013. If we had continued using the accounting estimates adopted in the second quarter of 2013 for amortizing content costs, a non-GAAP EBITDA profit of RMB3.1 million (US$0.5 million) would have been recorded in the third quarter of 2013 instead.

Business Outlook

For the fourth quarter of 2013, the Companyexpects net revenues will be between RMB860 million and RMB900 million, which implies a 35% to 42% year over year increase, with advertising net revenues contributing between RMB780 million and RMB820 million, which implies a 36% to 43% year over year increase.

The Company is expected to reach non-GAAP profitability in the fourth quarter of 2013.

These forecasts reflect the Company's current and preliminary view, which is subject to change.

Conference Call Information

Youku Tudou's management will host an earnings conference call at 8:00 p.m. U.S. Eastern Time on November 14, 2013 (9:00 a.m. Beijing/Hong Kong Time on November 15, 2013).

Interested parties may participate in the conference call by dialing one of the following numbers below and entering passcode Youku# (i.e., 96858#) starting 10-15 minutes prior to the beginning of the call.

US Toll Free Dial In: +1-866-519-4004
International Dial In: +65-6723-9381
Mainland China Dial In: +86-400-620-8038 / +86-800-819-0121
Hong Kong Dial In: +852-2475-0994

A replay of the call will be available by dialing +1-855-452-5696 and entering passcode 96753162#. The replay will be available through November 22, 2013.

This call will be webcast live and the replay will be available for 12 months. Both will be available on the Investor Relations section of Youku Tudou's corporate website at http://ir.youku.com.

About Youku Tudou Inc.

Youku Tudou Inc. (NYSE: YOKU) is China's leading Internet television company. Its Youku and Tudou Internet television platforms enable users to search, view and share high-quality video content quickly and easily across multiple devices. Its Youku brand and Tudou brand are among the most recognized online video brands in China. Youku Tudou's American depositary shares, each representing 18 of Youku Tudou's Class A ordinary shares, are traded on the NYSE under the symbol "YOKU."

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Youku Tudou's strategic and operational plans, contain forward-looking statements. Youku may also make written or oral forward-looking statements in its filings with the U.S. Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Youku Tudou's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our goals and strategies; our future business development, financial condition and results of operations; the expected growth of the online video market in China; our expectations regarding demand for and market acceptance of our services; our expectations regarding the retention and strengthening of our relationships with key advertisers and customers; our plans to enhance user experience, infrastructure and service offerings; competition in our industry in China; and relevant government policies and regulations relating to our industry. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Youku does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Youku Tudou's financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Youku Tudou uses the following measures defined as non-GAAP financial measures by the SEC in evaluating its business:  non-GAAP content costs, non-GAAP gross profit or loss, non-GAAP operating expenses, non-GAAP sales and marketing expenses, non-GAAP product development expenses, non-GAAP general and administrative expenses, non-GAAP profit or loss from operations,  non-GAAP net profit or loss and  non-GAAP EBITDA profit or loss. We define non-GAAP content costs as content costs excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to user generated content. We define non-GAAP gross profit or loss as the respective nearest comparable GAAP financial measure to exclude share-based compensation expenses and amortization of intangible assets from business combination in relation to user generated content. We define non-GAAP operating expenses as operating expenses excluding share-based compensation expenses, business combination related expenses and amortization of intangible assets from business combination in relation to customer relationship, technology and non-compete provisions. We define non-GAAP sales and marketing expenses as sales and marketing expenses excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to customer relationship. We define non-GAAP product development expense as product development expenses excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to technology. We define non-GAAP general and administrative expenses as general and administrative expenses excluding share-based compensation expenses, business combination related expenses and amortization of intangible assets from business combination in relation to non-compete provisions. We define non-GAAP profit or loss from operations as profit or loss from operations excluding share-based compensation expenses, amortization of intangible assets from business combination and business combination related expenses. We define non-GAAP net profit or loss as net loss excluding share-based compensation expenses, amortization of intangible assets from business combination and business combination related expenses. We define non-GAAP EBITDA profit or loss as net profit or loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for share-based compensation expenses, amortization of intangible assets from business combination, business combination related expenses and other non-operating items.

We present non-GAAP financial measures because they are used by our management to evaluate our operating performance. We also believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies. A limitation of using non-GAAP financial measures is that non-GAAP measures exclude share-based compensation charges that have been and will continue to be significant recurring expenses in Youku Tudou's business for the foreseeable future.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP financial measures" at the end of this release.

For more information, please contact:

Ryan Cheung
Corporate Finance Director
Youku Tudou Inc.
Tel: (+8610) 5885-1881 x6090
Email: [email protected]

SOURCE Youku Tudou Inc.

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