Youku Turns to ‘Captain America’ as Stock Selloff Deepens

Youku Tudou Inc., the Chinese video website that went public in 2010, is posting the worst monthly decline in a year as concern mounts that growing competition will erode earnings.

American depositary receipts of Youku dropped 5.1 percent to $27.31 last week, extending their monthly slump to 18 percent. Both Tencent Holdings Ltd., Asia’s largest Internet company, and Baidu Inc., China’s biggest search-engine operator, have been expanding into the online video business.

Youku, seeking to maintain market share and fend off its bigger rivals, recently signed a deal with Walt Disney Co. to co-market movies like “Captain America: The Winter Soldier.” Hollywood stars Scarlett Johansson and Samuel L. Jackson flew out to Beijing to promote the film’s March 24 premiere in China.

“It’s always good to be associated with a big name like Disney, but Youku has a number of problems the company needs to take care of,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which manages $1.1 billion in assets, said by phone from Lisle, Illinois on March 26. “Competition is very tough and the big players are very strong.”

Tencent Chief Strategy Officer James Mitchell said March 19 that the company is planning to double spending on video content to increase its market share. In September, Baidu said it would start selling smart TVs with TCL Multimedia Technology Holdings Ltd. to help boost its online video business.

The online video market will probably be worth 17.8 billion yuan ($2.87 billion) this year and double to 36.6 billion yuan in 2017, according to consulting firm IResearch.

Stake Purchase

Youku surged as much as 12 percent on March 26 after NetEase Inc. reported that Tencent bought a 20 percent stake in the company. Youku said in a statement to the New York Stock Exchange that it doesn’t comment on rumors. Jerry Huang, a spokesman for Tencent, didn’t return a call seeking comment.

While Youku hasn’t had any merger talks, the industry is at a stage where partnerships are being considered, Chief Executive Officer Victor Koo said.

“As a public company we certainly can say that we’re open to discussing strategic options,” Koo said in a March 14 interview in Beverly Hills, California. “You’re not going to see another company acquiring us.”

Youku has surged 62 percent in the past 12 months, compared with a 6.3 percent advance for the Bloomberg Index of the most-traded Chinese stocks in the U.S.

The nation’s stocks trading in New York extended the biggest weekly rally in a month on March 28 as China Mobile Ltd. led state-owned companies higher amid speculation the government will take more measures to support growth.

Policy Tools

China has additional policy tools it can use to help ease any economic volatility this year and can’t ignore “difficulties and risks” from a slowdown, Premier Li Keqiang said in a statement on the government’s website. The manufacturing industry weakened for a fifth straight month in March, according to a preliminary measure released last week, deepening concern the nation will miss this year’s 7.5 percent growth target.

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., gained 5.5 percent to $35.83 last week.

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