China's Internet Video Giant Youku Tudou Turns First Profit in Fourth Quarter

Victor Koo, founder and CEO of Youku Tudou

The country's top video site saw net revenues rise 42 percent, while "The Walking Dead," "The Shield" and "Under the Dome" were among the most popular U.S. shows on the service.

On a non-GAAP basis, the online TV company Youku Tudou -- which was formed by the merger of two former rivals, Youku and Tudou, in August 2012 -- made a net profit for the first time of $7.3 million in the fourth quarter of 2013.

Youku Tudou’s net revenues were $148.9 million (901.3 million) during the quarter, which is a rise of 42 percent from the same period a year ago, while its net loss was down 78 percent at $4.1 million during the quarter.

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The group had previously said that it expected to become profitable during the fourth quarter of the year.

Because of adjustments due to the merger, year-on-year comparisons could not always be provided on a consistent basis, so the fourth quarter figures give a better indication of the direction the company is going.

Among the most popular U.S. shows on the platform this year are The Walking Dead, The Shield and Under the Dome, as well as Downton Abbey, Sherlock and the Japanese anime series Naruto.

The company averages 200 million daily views a day, and has said previously that it plans to invest heavily in new content this year.

Content costs as a component of cost of revenues were $58.4 million in the fourth quarter of 2013, representing 39 percent of net revenues.

Figures for full year 2013 show net revenues were $500 million (3 billion yuan), while the group’s net loss during the year was $95.9 million.

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"The strong operational and financial performance recorded in the fourth quarter enabled Youku Tudou to achieve profitability on a combined basis for the first time in the company's history," said Victor Koo, chairman and CEO of Youku Tudou.

"With dynamic rise in mobile traffic throughout 2013, our existing comprehensive content library and the two most recognized online video brands set Youku Tudou apart as China's number one multi-screen video company."

Youku Tudou’s president Dele Liu said changing viewership patterns in China made providing a more diverse content mix crucial.

"As viewing content from multiple Internet-enabled devices increasingly becomes a social phenomenon in China, a diverse and comprehensive content mix is critical to elevating our media value and further expanding our leadership across China. We believe our most comprehensive content offering provides enlightening entertainment to hundreds of millions of users in China," said Liu.

Advertising net revenues in the fourth quarter were $132.3 million, in line with previous company guidance, and primarily attributable to the increased use by brand advertisers of the group’s advertising services, as evidenced by the rising average spend per advertiser.

Bandwidth costs in the fourth quarter as a component of cost of revenues were $29.5 million, accounting for 20 percent of net revenues, compared to 26 percent of net revenues for the corresponding period in 2012.

Looking ahead, the company said it expects net revenues in the current quarter to be between $111 million and $117.5 million, with advertising net revenues contributing between $98 million and $104.4 million.