Youku.com Announces Unaudited First Quarter 2011 Financial Results

Net Revenues Increased by 163% Year-over-Year as Monthly Unique Visitors Continued to Grow

BEIJING, May 6, 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 first quarter ended March 31, 2011.

First Quarter 2011 Highlights(1)

• Net revenues were RMB128.0 million (US$19.5 million), a 163% increase from the corresponding period in 2010(2).
• Gross profit was RMB14.0 million (US$2.1 million), compared to a gross loss of RMB18.3 million (US$2.8 million) for the corresponding period in 2010.
• Net loss was RMB46.9 million (US$7.1 million), an 8% decrease relative to the corresponding period in 2010.
• Adjusted EBITDA loss (non-GAAP financial measure) was RMB29.9 million (US$4.6 million), compared to an adjusted EBITDA loss of RMB37.0 million (US$5.6 million) for the corresponding period in 2010, or a 19% improvement relative to the corresponding period in 2010.

"Our monthly unique visitors from homes and offices reached 231 million in March 2011, an increase of 22 million from December 2010, while our monthly unique visitors from Internet cafés exceeded 50 million in February 2011, according to iResearch. We continue to strengthen our leadership position in the Internet television space in China," said Victor Koo, Chairman and Chief Executive Officer.

"We are also excited to see growing user traffic coming from tablet and mobile phones, which reinforces our commitment to be the primary source of video content across all Internet-enabled devices. Our significant and timely investments in tablets and 3G applications continue to pay off. With respect to our content, we have achieved record viewership of television series and continue to increase the monetization of inventory associated with our in-house productions." Mr. Koo added.

Dele Liu, Senior Vice President and Chief Financial Officer commented, "I am pleased to report a solid quarter of top line growth. We continue to experience ongoing revenue momentum in our business as online video advertising becomes increasingly mainstream. For the rest of 2011, we will remain focused on improving our user experience and investing aggressively in content, technology, product innovation and brand to capitalize on the growing market opportunity in front of us."

(1) The reporting currency of the Company is Renminbi ("RMB"), but for the convenience of the reader, the amounts presented throughout the release are in US dollars ("US$"). Unless otherwise noted, all conversions from RMB to US$ are made at a rate of RMB6.5483 to US$1.00, the effective noon buying rate as of March 31, 2011 in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.

(2) The Company's net revenues are presented net of commissions earned by third-party advertising agencies, which amounted to RMB24.7 million (US$3.8 million) in the first quarter of 2011 and RMB9.8 million (US$1.5 million) in the corresponding period in 2010.

First Quarter 2011 Results

Net revenues were RMB128.0 million (US$19.5 million) in the first quarter of 2011, representing a 163% increase from the corresponding period in 2010 and exceeding the high end of the Company's guidance by 22%. The significant increase in net revenues was mainly due to the strong performance of brand advertising revenues, which amounted to RMB119.8 million (US$18.3 million) in the first quarter of 2011, representing a 165% increase from the corresponding period in 2010. This growth was primarily attributable to the increased number of advertisers and increased average revenue per advertiser.

Bandwidth costs as a component of cost of revenues were RMB56.3 million (US$8.6 million) in the first quarter of 2011, representing 44% of net revenues, down from 90% in the corresponding period in 2010.

Content costs as a component of cost of revenues were RMB36.1 million (US$5.5 million), representing 28% of net revenues, compared to 17% in the corresponding period in 2010. We have changed our accounting estimate regarding the pattern of the benefits that we derive from our licensed content, resulting in amortization of costs on an accelerated basis. Of the RMB36.1 million (US$5.5 million) content costs,  RMB28.2 million (US$4.3 million), or 22% of net revenues, was incurred in the first quarter of 2011 using the newly adopted accelerated method and RMB7.9 million (US$1.2 million), or 6% of net revenues, relates to the adjustment to the accumulated amortization of licensed content acquired prior to 2011 using the accelerated method instead of straight-line method. If the Company had continued using a straight-line amortization method for content costs, RMB24.6 million (US$3.8 million), or 19% of net revenues, would have been recorded in the first quarter of 2011. Prior to 2011, our licensed content was amortized using a straight-line method over the estimated useful life, which was generally the license period. The change of estimate was effective in the first quarter of 2011 and will be applied prospectively.

Gross profit was RMB14.0 million (US$2.1 million) in the first quarter of 2011, compared to a gross loss of RMB18.3 million (US$2.8 million) for the corresponding period in 2010. The significant increase in gross profit was mainly due to increased revenues from brand advertising services and partially offset by an increased cost of revenues as described in the preceding paragraphs pertaining to bandwidth and content costs.

Operating expenses were RMB59.8 million (US$9.1 million) in the first quarter of 2011, an increase of 93% compared to RMB31.0 million (US$ 4.7 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 RMB45.8 million (US$7.0 million) in the first quarter of 2011, representing a 7% 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 RMB46.9 million (US$7.1 million) in the first quarter of 2011, representing an 8% 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 first quarter of 2011 amounted to RMB0.45 (US$0.07) and RMB0.45 (US$0.07), 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 RMB41.5 million (US$6.3 million) in the first quarter of 2011, or a decrease of 15% 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 RMB29.9 million (US$4.6 million) for the first quarter of 2011, or a decrease of 19% relative to the corresponding period in 2010.

Business Outlook

For the second quarter of 2011, the Company expects year-on-year growth in net revenues of 125% to 135%. This forecast reflects Youku'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 May 5, 2011 (9:00 a.m. Beijing/Hong Kong Time on May 6, 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 35773540#. The replay will be available through May 13, 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.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 registration statement on Form F-1, as amended, 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.

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