Goldman Raises price target to $43.00
Despite a fall of 93 cents, or 2%, to $40.66 today in shares of Youku.com (YOKU) following a deeper-than-expected net loss last night, Goldman Sachs analyst James Mitchell this morning reiterated a Buy rating on the stock and raised his price target to $43 from $40, as his profit estimates are actually going up.
Turns out the 13-cent non-GAAP net loss per share was just a couple cents worse than Mitchell expected, versus a 10-cent miss to consensus, and the revenue forecast for this quarter, which seemed to suggest a deceleration from almost 200% growth to just 100%, is not of real concern, as Mitchell thinks it may be “conservative.”
“Youku’s Q1 2011 revenue is heavily skewed toward March versus February,” writes Mitchell, “leading us to believe that its Q1 revenue guidance could prove conservative.”
In general, Youku’s revenue will probably show up more toward the latter part of this year, given a heavy reliance on auto ads, he writes, unlike the more even revenue coming out of search engines in China such as Baidu (BIDU), he opines.
Moreover, the company’s Ebitda profit in the quarter was in contrast to his expectation for a loss, five quarters earlier than he’d expected to see such profit, he writes. He now thinks Youku could become profitable by Q4 of this year.
Mitchell cut his revenue estimates this year and next, but he also raised his profit estimate to a net loss of 66 million Renminbi this year, from a prior loss estimate of 110 million renminbi, a net loss of 20 cents per share in earnings, versus his prior 25-cent estimate. For 2012, Mitchell sees a positive Ebitda of 113 million Renminbi, versus his prior 52 million Renminbi estimate, and EPS of a penny versus a prior 6-cent loss.
The big change, I’d note, on the expense line, is the assumption Youku will have vastly lower sales and marketing expenses, at only 21.9% of sales, down from 27.5% in 2011, down from his prior estimate for 37.4% of sales going to that category. Mitchell notes that he thinks the company may ride the celebrity of its post-IPO status to cut some of the cost of bringing in advertisers.
