Youku May Post Profit in Second Quarter, Macquarie Says

Youku Tudou Inc. may post a profit in the second quarter of next year, its first since listing in 2010, as China’s largest online video company benefits from lower content costs, analysts at Macquarie Group Ltd. said.

The improved profit outlook should boost Youku’s shares to $21 in the next 12 months, analysts led by Jiong Shao at Macquarie in Hong Kong, wrote in a report yesterday. The broker raised its rating on the stock to outperform from underperform with Youku’s American depositary receipts jumping 14 percent to close at $19.24 in New York trading overnight.

The company in August completed its purchase of Tudou Holdings Ltd. to reduce costs and extend its lead over websites run by Baidu Inc. and Tencent Holdings Ltd. Industry consolidation this year has cut the company’s two largest expenditures, content and bandwidth, Chief Executive Officer Victor Koo said in an interview in September, without projecting when the company would make a profit.

“With the worst of negative impact from Tudou likely behind us, we believe the new Youku Tudou may have reached an inflection point and revenue growth may start to accelerate,” Macquarie’s Shao wrote in the report. “Content costs have declined significantly and are unlikely to move much higher.”

Youku had a net loss of 91.5 million yuan ($15 million) in the third quarter, its first since the acquisition of Tudou, it said in November.

The company is projected to post losses through the second quarter of next year before reporting a profit, excluding some costs, in the third quarter, according to analyst estimates compiled by Bloomberg. Third-quarter adjusted profit is forecast at 32.1 million yuan, according to the average of four analyst estimates in a Bloomberg survey.

Jean Shao, a Beijing-based spokeswoman for Youku Tudou, declined to comment on the Macquarie report or the outlook for profit.

— With assistance by Lulu Chen

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