Youku.com (YOKU)

[eastunder]

Why Youku Slumped After Alibaba’s $1.2 Billion Investment?

http://blogs.barrons.com/emergingmarketsdaily/2014/04/29/why-youku-slumped-after-alibabas-1-2-billion-investment/?mod=yahoobarrons&ru=yahoo


By Shuli Ren

Yesterday, China’s online video site Youku Tudou (YOKU) announced that Alibaba Group and Yunfeng Capital will jointly invest $1.22 billion in Youku. After the investment, Alibaba Group will have 16.5% of Youku while Yunfeng holds 2%.

The offer price, $30.5 per ADR, represents around 26% premium to Youku’s close price on Friday. But shares of Youku slumped 5.5% yesterday. This stock recovers somewhat by 1% this morning.

A strategic investment from Alibaba would be a vote of confidence. Why would the often-rumored acquisition target Youku slump?

Nomura Securities analysts Chao Wang and Liz Guan offered three plausible explanations:

1.short term positive catalyst no longer exists;

2.Youku-Alibaba synergy is lower than that of Youku-Baidu or Youku-Tencent;

3.sitting on USD15bn cash post deal, Youku may do aggressive investment on mobile/OTT/content which may drag down its margin.