Youku.com Announces Unaudited Second Quarter 2011 Financial Results

BEIJING, August 9, 2011 /PRNewswire-Asia/ -- Youku.com Inc. (NYSE: YOKU), China's leading Internet television company ("Youku" or the "Company"), today announced its unaudited financial results for the second quarter ended June 30, 2011.

Second Quarter 2011 Highlights (1)

• Net revenues were RMB197.8 million (US$30.6 million), a 178% increase from the corresponding period in 2010.(2)
• Gross profit was RMB52.9 million (US$8.2 million), compared to a gross loss of RMB11.5 million (US$1.8 million) for the corresponding period in 2010.
• Net loss was RMB28.1 million (US$4.3 million), a 55% decrease relative to the corresponding period in 2010.
• Adjusted EBITDA loss (non-GAAP financial measure) was RMB10.1 million (US$1.6 million), compared to an adjusted EBITDA loss of RMB44.3 million (US$6.9 million) for the corresponding period in 2010, or a 77% improvement relative to the corresponding period in 2010.

"Strong traffic growth, heightened brand preference and strong execution by the team resulted in another solid quarter of revenue growth for Youku," said Victor Koo, Chairman and Chief Executive Officer of Youku. "We remain focused on enhancing user experience and, as a result, we are driving a virtuous cycle of self-reinforcing growth where factors such as higher revenue, more aggressive investment in content and technology, and growing user traffic strengthen each other. This virtuous cycle continues to expand our leadership position in the Internet television space in China. We have never been more confident about our long term potential," Mr. Koo added.

Dele Liu, Senior Vice President and Chief Financial Officer of Youku, commented, "We are excited to see continued top line growth and improved economics. Comprehensive content library, high streaming speed, and economies of scale are driving our growth. The recent follow-on offering gives us a stronger balance sheet to help the Company invest more in our future growth."

Second Quarter 2011 Results

Net revenues were RMB197.8 million (US$30.6 million) in the second quarter of 2011, representing a 178% increase from the corresponding period in 2010 and exceeding the high end of the revenue guidance previously announced by the Company by 18%. The significant increase in net revenues was mainly due to the strong performance of brand advertising revenues, which amounted to RMB190.0 million (US$29.4 million) in the second quarter of 2011, representing a 181% increase from the corresponding period in 2010. This growth was primarily attributable to the increased average revenue per advertiser and increased number of advertisers.

Bandwidth costs as a component of cost of revenues were RMB66.3 million (US$10.3 million) in the second quarter of 2011, representing 33% of net revenues, down from 65% in the corresponding period in 2010.

Content costs as a component of cost of revenues were RMB49.5 million (US$7.7 million) in the second quarter of 2011, representing 25% of net revenues in the same period, compared to 26% in the corresponding period in 2010. Based on a new quarter of traffic data of TV serial dramas, we have adjusted our accounting estimates regarding the pattern of the benefits that we derive from our licensed TV serial dramas, resulting in a larger extent of amortization of costs on an accelerated basis. Of the RMB49.5 million (US$7.7 million) content costs, RMB43.2 million (US$6.7 million), or 22% of net revenues, was incurred in the second quarter of 2011 using the newly adjusted amortization estimates and RMB6.3 million (US$1.0 million), or 3% of net revenues, relates to the adjustment to the accumulated amortization of TV serial dramas acquired prior to second quarter 2011 using the new amortization estimates of TV serial dramas. If the Company had continued using the accounting estimates adopted in the first quarter of 2011 for amortizing content costs, RMB40.2 million (US$6.2 million), or 20% of net revenues, would have been recorded in the second quarter of 2011.

Gross profit was RMB52.9 million (US$8.2 million) in the second quarter of 2011, compared to a gross loss of RMB11.5 million (US$1.8 million) for the corresponding period in 2010. The significant increase in gross profit was mainly due to increased revenues from brand advertising services and was partially offset by an increased cost of revenues as described in the preceding paragraphs pertaining to bandwidth and content costs.

Operating expenses were RMB80.7 million (US$12.5 million) in the second quarter of 2011, an increase of 76% compared to RMB45.9 million (US$7.1 million) in the corresponding period in 2010. The increase was primarily due to increases in all of the operating expense line items as a result of the substantial growth of our business.

Operating loss was RMB27.8 million (US$4.3 million) in the second quarter of 2011, representing a 52% decrease relative to the corresponding period in 2010. The improvement was mainly due to the significant increase in gross profit as noted above.

Net loss was RMB28.1 million (US$4.3 million) in the second quarter of 2011, representing a 55% decrease relative to the corresponding period in 2010. Basic and diluted loss per ADS, each ADS representing 18 of our Class A ordinary shares, for the second quarter of 2011 amounted to RMB0.26 (US$0.04) and RMB0.26 (US$0.04), respectively.

Adjusted net loss (non-GAAP financial measure), which is herein defined as net loss excluding share-based compensation expenses and change in fair value of warrant liability, was RMB20.8 million (US$3.2 million) in the second quarter of 2011, or a decrease of 63% relative to corresponding period in 2010.

Adjusted EBITDA loss (non-GAAP financial measure), 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 change in fair value of warrant liability, share-based compensation expenses and other non-operating items, was RMB10.1 million (US$1.6 million) for the second quarter of 2011, or a decrease of 77% relative to the corresponding period in 2010. Excluding the current quarter true-up charge relating to the estimations in content amortization, the adjusted EBITDA loss would be RMB0.8 million (US$0.12 million).

Business Outlook

For the third quarter of 2011, the Company expects year-on-year growth in net revenues of 110% to 120%. This forecast reflects the Company's current and preliminary view, which is subject to change.

Conference Call Information

Youku's management will host an earnings conference call at 9:00 p.m. U.S. Eastern Time on August 8, 2011 (9:00 a.m. Beijing/Hong Kong Time on August 9, 2011).

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.

A replay of the call will be available by dialing 1-888-286-8010 (international 1-617-801-6888), and entering passcode 41011255#. The replay will be available through August 19, 2011.

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's corporate website at http://ir.youku.com.

Filing of Annual Report on Form 20-F

On June 10, 2011, the Company filed its annual report on Form 20-F that includes its audited financial statements for three years ended December 31, 2010 with the Securities and Exchange Commission. The annual report is available on the Company's website at http://ir.youku.com. Holders of the Company's securities may request a hard copy of the Company's annual report free of charge.

About Youku

Youku.com Inc. is China's leading Internet television company. Our Internet television platform enables users to search, view and share high-quality video content quickly and easily across multiple devices. Youku, which stands for "what's best and what's cool" in Chinese, is the most recognized online video brand in China. Youku's American depositary shares, each representing 18 of our Class A ordinary shares, are traded on 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'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'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's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Youku uses the following measures defined as non-GAAP financial measures by the SEC in evaluating its business: adjusted net loss and adjusted EBITDA loss. We define adjusted net loss as net loss excluding share-based compensation expenses and change in fair value of warrant liability. We define adjusted EBITDA loss as net income or loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for change in fair value of warrant liability, share-based compensation 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 consolidated 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.

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.