Youku Announces Unaudited Third Quarter 2011 Financial Results

BEIJING, November 17, 2011 /PRNewswire-Asia/ -- Youku Inc. (NYSE: YOKU), China's leading Internet television company ("Youku" or the "Company"), today announced its unaudited financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Highlights (1)

• Net revenues were RMB262.5 million (US$41.2 million), a 129% increase from the corresponding period in 2010, exceeding the high end of the Company's guidance by 4%.
• Gross profit was RMB67.8 million (US$10.6 million), a 330% increase from the corresponding period in 2010.
• Operating expenses were RMB120.1 million (US$18.8 million), a 120% increase from the corresponding period in 2010.
• Net loss was RMB47.5 million (US$7.4 million) in the third quarter of 2011, an 11% decrease relative to the corresponding period in 2010.
• Non-GAAP net loss was RMB28.2 million (US$4.4 million) in the third quarter of 2011, a 25% decrease relative to the corresponding period in 2010.
• Basic and diluted loss per ADS, each representing 18 of our Class A ordinary shares, for the third quarter of 2011 amounted to RMB0.42 (US$0.07) and RMB0.42 (US$0.07), respectively.

"We had another quarter of solid growth in both traffic and revenues, and our gap with competitors both in terms of traffic and revenues is clearly expanding as a result of network effect," said Victor Koo, Chairman and Chief Executive Officer of Youku. "Internet television is a young and evolving space with tremendous opportunities. We are in an aggressive investment cycle and we will continue to invest proactively to expand and leverage our user base and client base, brand, team and infrastructure as we move to establish one of the largest Internet franchises in China."

Dele Liu, Senior Vice President and Chief Financial Officer of Youku, commented, "We are happy to continue to realize another quarter of triple digit growth year-on-year. We are committed to creating shareholder value through long-term market leadership."

Third Quarter 2011 Results

Net revenues were RMB262.5 million (US$41.2 million) in the third quarter of 2011, representing a 129% increase from the corresponding period in 2010 and exceeding the high end of the revenue guidance previously announced by the Company by 4%. This year-over-year growth was primarily attributable to the increased average revenue per advertiser and the increased number of advertisers on top of a base that grew 139% year-over-year in the previous year partially due to the 2010 World Cup.

Bandwidth costs as a component of cost of revenues were RMB92.4 million (US$14.5 million) in the third quarter of 2011, representing 35% of net revenues, down from 44% in the corresponding period in 2010. The increase of bandwidth costs was primarily due to increased bandwidth capacity to support the growth of traffic to our website and further enhance our user experience.

Content costs as a component of cost of revenues were RMB67.0 million (US$10.5 million) in the third quarter of 2011, representing 26% of net revenues in the same period, compared to 26% in the corresponding period in 2010 despite our change in accounting estimate to accelerate amortization of content costs starting in fiscal year 2011. If the Company had continued using straight-line amortization for content costs as in the corresponding period in 2010, the total content costs would have been RMB52.1 million (US$8.2 million), representing 20% of net revenues in the third quarter of 2011.

Non-GAAP gross profit, which is herein defined as gross profit excluding share-based compensation expenses, was RMB69.2 million (US$10.8 million) in the third quarter of 2011, an increase of 332% compared to the non-GAAP gross profit of RMB16.0 million (US$2.5 million) in the corresponding period in 2010.

Non-GAAP operating expenses, which is herein defined as operating expenses excluding share-based compensation expenses, were RMB102.3 million (US$16.0 million) in the third quarter of 2011, compared to the non-GAAP operating expenses of RMB51.4 million (US$8.1 million) for the same period in 2010. The increase was primarily due to increases in sales and marketing expenses, product development expenses and general and administrative expenses as a result of the substantial growth of our business. The detailed discussion of each component of operating expenses are as follows:

Non-GAAP sales and marketing expenses, which is herein defined as sales and marketing expenses excluding share-based compensation expenses, were RMB68.2 million (US$10.7 million) in the third quarter of 2011, an increase of 85% compared to the non-GAAP sales and marketing expenses of RMB36.7 million (US$5.8 million) in the corresponding period in 2010. This increase was primarily due to increases in marketing expenses and commission expenses paid to our sales force in line with our revenue growth.

Non-GAAP product development expenses, which is herein defined as product development expenses excluding share-based compensation expenses, were RMB18.5 million (US$2.9 million) in the third quarter of 2011, an increase of 134% compared to the non-GAAP product development expenses of RMB8.0 million (US$1.3 million) in the corresponding period in 2010. This increase was primarily due to an increase in salaries and benefits for product and development personnel resulting from increased headcount.

Non-GAAP general and administrative expenses, which is herein defined as general and administrative expenses excluding share-based compensation expenses, were RMB15.6 million (US$2.4 million) in the third quarter of 2011, an increase of 131% compared to the non-GAAP general and administrative expenses of RMB6.7 million (US$1.1 million) in the corresponding period in 2010. This increase was primarily due to an increase in salaries and benefits for our general and administrative personnel primarily resulting from headcount increase and the substantial growth of our business.

Non-GAAP net loss, which is herein defined as net loss excluding share-based compensation expenses and change in fair value of warrant liability, was RMB28.2 million (US$4.4 million) in the third quarter of 2011, or a decrease of 25% relative to the non-GAAP net loss in the corresponding period in 2010. If we had continued using straight-line amortization for content costs as in the corresponding period in 2010, our non-GAAP net loss in the third quarter of 2011 would be RMB13.3 million (US$2.1 million), or a decrease of 65% relative to the corresponding period in 2010.

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 change in fair value of warrant liability, share-based compensation expenses and other non-operating items, was RMB21.4 million (US$3.4 million) for the third quarter of 2011, or an improvement of 13% relative to the non-GAAP EBITDA loss in the corresponding period in 2010.

Business Outlook

For the fourth quarter of 2011, the Company expects year-on-year growth of 90% to 100% in net revenues. 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 8:00 p.m. U.S. Eastern Time on November 16, 2011 (9:00 a.m. Beijing/Hong Kong Time on November 17, 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 1-866-214-5335 (international 1-718-354-1232), and entering passcode 24935949#. The replay will be available through November 24, 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.

About Youku

Youku 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: non-GAAP gross profit, non-GAAP operating expenses, non-GAAP sales and marketing expense, non-GAAP product development expenses, non-GAAP general and administrative expenses, non-GAAP loss from operations, non-GAAP net loss and non-GAAP EBITDA loss. We define non-GAAP gross profit, non-GAAP operating expenses, non-GAAP sales and marketing expense, non-GAAP product development expenses, non-GAAP general and administrative expenses, and non-GAAP loss from operations as the respective nearest comparable GAAP financial measure to exclude share-based compensation expenses. We define non-GAAP net loss as net loss excluding share-based compensation expenses and change in fair value of warrant liability. We define non-GAAP 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.

For more information, please contact:

Investor Relations:

Ryan Cheung
Corporate Finance Director
Youku Inc.
Tel: (+8610) 5885-1881 x6090
Email: ryan.cheung@youku.com

Caroline Straathof
IR Inside
Tel: (+31) 6-54624301
Email: caroline.straathof@irinside.com