YOKU Youku Tudou Inc. American Depositary Shares, Each Representing 18 Class A Ordinary Shares.

BEIJING, Aug. 19, 2014 /PRNewswire/ -- Youku Tudou Inc. (NYSE: YOKU), China's leading Internet television company ("Youku Tudou" or the "Company"), today announced its unaudited financial results for second quarter 2014.

Second Quarter 2014 Highlights[1] 

• Net revenues were RMB958.7 million (US$154.5 million), a 27% increase from the corresponding period in 2013. We derive a part of our revenues from mobile value-added services through partnership agreements with third party mobile network operators and shares the fees collected by the mobile network operators for such services. We were still in the process of renewing the service agreement with one of our major mobile network operators by the end of the second quarter of 2014 and as a result, we deferred recognition of such revenues, about RMB40 million, until the completion of the service agreement renewal process.
• Gross profit was RMB208.6 million (US$33.6 million), a 10% increase from the corresponding period in 2013. Non-GAAP[2] gross profit was RMB223.9 million (US$36.1 million) in the second quarter of 2014, an increase of 10% from the corresponding period in 2013.  
• Net loss was RMB164.4 million (US$26.5 million), a 57% increase from the corresponding period in 2013. Non-GAAP net loss was RMB75.9 million (US$12.2 million) in the second quarter of 2014, as compared to RMB44.6 million (US$7.2 million) from the corresponding period in 2013. .
• Basic and diluted loss per ADS, each representing 18 Class A ordinary shares of the Company, for the second quarter of 2014 amounted to RMB0.88 (US$0.14) and RMB0.88 (US$0.14), respectively. Non-GAAP basic and diluted loss per ADS for the second quarter of 2014 amounted to RMB0.41 (US$0.07) and RMB0.41 (US$0.07), respectively.
• Cash, cash equivalents, restricted cash and short-term investments totaled RMB10.2 billion (US$1.6 billion) as of June 30, 2014.
• Acquisition of property and equipment for the second quarter of 2014 was RMB85.0 million (US$13.7 million).
• Acquisition of intangible assets for the second quarter of 2014 was RMB246.3 million (US$39.7 million).

"Multi-screen Internet is increasingly mainstream and the convergence of online and offline entertainment has presented new market opportunities. We are scaling our investment and leveraging our strengthened resources to enhance our business model," said Victor Koo, Chairman and Chief Executive Officer of Youku Tudou. "Youku Tudou has helped transform how media and entertainment related content is distributed and marketed since our inception. Going forward, we will work with our online and offline partners to continue to change how content is created and monetized by directly connecting with the ever-growing consumer economy as Youku Tudou is best positioned in developing the leading multi-screen media and entertainment ecosystem in China."

Dele Liu, President and Board Director of Youku Tudou, added, "Our traffic has grown strongly this quarter with our user base reaching over 500 million on a monthly basis. We have made a smooth transition to multi-screen monetization with over 30% of revenues generated from mobile and solid progress on subscription services with 379% growth year on year. By partnering with Alibaba on big data initiatives, we are enhancing our products to create an unique value proposition to advertising partners and consumers. We are confident that our revenue will continue to diversify and grow."

Second Quarter 2014 Results

Net revenues were RMB958.7 million (US$154.5 million) in the second quarter of 2014, a 27% increase from the corresponding period in 2013, meeting net revenues guidance previously announced by the Company. Advertising net revenues were RMB915.5 million (US$147.6 million), meeting the advertising net revenues guidance previously announced by the Company. The growth was primarily attributable to the increased use by brand advertisers of our advertising services as evidenced by an increase in the number of advertisers and the rising average spend per advertiser.

Bandwidth costs as a component of cost of revenues were RMB213.5 million (US$34.4 million)in the second quarter of 2014, representing 22% of net revenues, as compared to 22% of net revenues for the corresponding period in 2013.

Content costs as a component of cost of revenues were RMB418.3 million (US$67.4 million) in the second quarter of 2014, representing 44% of net revenues as compared to 40% of net revenues for the corresponding period in 2013. Non-GAAP content costs were RMB402.9 million (US$65.0 million) in the second quarter of 2014, representing 42% of net revenues, as compared to 38% of net revenues for the corresponding period in 2013.

Gross profit was RMB208.6 million (US$33.6 million)in the second quarter of 2014, an increase of 10% from the corresponding period in 2013. Non-GAAP gross profit was RMB223.9 million (US$36.1 million) in the second quarter of 2014, an increase of 10% from the corresponding period in 2013 due to strong operating leverage.

Operating expenses were RMB386.4 million (US$62.3 million) in the second quarter of 2014, as compared to RMB306.8 million (US$49.5 million) for the corresponding period in 2013. Non-GAAP operating expenses were RMB313.2 million (US$50.5 million) in the second quarter of 2014, as compared to RMB260.6 million (US$42.0 million) for the corresponding period in 2013. Detailed discussion of each component of operating expenses is as follows:

Sales and marketing expenses were RMB212.8 million (US$34.3 million) in the second quarter of 2014, as compared to RMB165.2 million (US$26.6 million) for the corresponding period in 2013. Non-GAAP sales and marketing expenses were RMB186.1 million (US$30.0 million) in the second quarter of 2014, as compared to RMB150.4 million (US$24.2 million) for the corresponding period in 2013. This increase was due to higher commission expenses paid to our sales force in line with our revenue growth.

Product development expenses were RMB99.1 million (US$16.0 million) in the second quarter of 2014, as compared to RMB66.1 million (US$10.7 million) for the corresponding period in 2013. Non-GAAP product development expenses were RMB78.9 million (US$12.7 million) in the second quarter of 2014, as compared to RMB54.8 million (US$8.8 million) for the corresponding period in 2013. This increase was primarily due to an increase in personnel related expenses for our product development in mobile, search, social, paid and live broadcasting services.

General and administrative expenses were RMB74.5 million (US$12.0 million) in the second quarter of 2014, as compared to RMB75.6 million (US$12.2 million) for the corresponding period in 2013. Non-GAAP general and administrative expenses were RMB48.2 million (US$7.8 million) in the second quarter of 2014, a decrease of 13% from the corresponding period in 2013.

Net loss was RMB164.4 million (US$26.5 million)in the second quarter of 2014, as compared to RMB105.1 million (US$16.9 million) for the corresponding period in 2013. Non-GAAP net loss was RMB75.9 million (US$12.2 million) in the second quarter of 2014, as compared to RMB44.6 million (US$7.2 million) from the corresponding period in 2013.

Non-GAAP adjusted EBITDA Loss was RMB52.9 million (US$8.5 million) in the second quarter of 2014, as compared to RMB28.7 million (US$4.6 million) from the corresponding period in 2013.

Business Outlook

For the third quarter of 2014, the Companyexpects net revenues will be between RMB1.09 billion and RMB1.13 billion, with advertising net revenues contributing between RMB965 million and RMB1.01 billion. This forecast reflects the Company's current and preliminary view, which is subject to change.

Conference Call Information

Youku Tudou's management will host an earnings conference call at 9:00 p.m. U.S. Eastern Time on August 19, 2014 (9:00 a.m. Beijing/Hong Kong Time on August 20, 2014).

Interested parties may participate in the conference call by dialing one of the following numbers below and entering passcode Youku# (i.e., 96858#) starting 10-15 minutes prior to the beginning of the call.

US Toll Free Dial In: 1-866-519-4004
International Dial In: +65-6723-9381
Mainland China Toll Free Dial In: +86-400-620-8038 / +86-800-819-0121
Hong Kong Dial In: +852-2475-0994

A replay of the call will be available by dialing +61 2 8199 0299 and entering passcode 87262225#. The replay will be available through August 27, 2014.

This call will be webcast live and the replay will be available for 12 months. Both will be available on the Investor Relations section of Youku Tudou's corporate website at http://ir.youku.com.

About Youku Tudou Inc.

Youku Tudou Inc. (NYSE: YOKU) is China's leading Internet television company. Its Youku and Tudou Internet television platforms enable users to search, view and share high-quality video content quickly and easily across multiple devices. Its Youku brand and Tudou brand are the most recognized online video brands in China. Youku Tudou's American depositary shares, each representing 18 of Youku Tudou's Class A ordinary shares, are traded on the NYSE under the symbol "YOKU."  

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Youku Tudou's strategic and operational plans, contain forward-looking statements. Youku Tudou may also make written or oral forward-looking statements in its filings with the U.S. Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Youku Tudou's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our goals and strategies; our future business development, financial condition and results of operations; the expected growth of the online video market in China; our expectations regarding demand for and market acceptance of our services; our expectations regarding the retention and strengthening of our relationships with key advertisers and customers; our plans to enhance user experience, infrastructure and service offerings; competition in our industry in China; and relevant government policies and regulations relating to our industry. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Youku Tudou does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Youku Tudou's financial results presented in accordance with United States Generally Accepted Accounting Principles (GAAP), Youku Tudou uses the following measures defined as non-GAAP financial measures by the SEC in evaluating its business:  non-GAAP content costs, non-GAAP gross profit, non-GAAP operating expenses, non-GAAP sales and marketing expenses, non-GAAP product development expenses, non-GAAP general and administrative expenses, non-GAAP loss from operations, non-GAAP net loss and non-GAAP EBITDA loss. We define non-GAAP content costs as content costs excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to user generated content. We define non-GAAP gross profit or loss as the respective nearest comparable GAAP financial measure to exclude share-based compensation expenses and amortization of intangible assets from business combination in relation to user generated content. We define non-GAAP operating expenses as operating expenses excluding share-based compensation expenses, business combination related expenses and amortization of intangible assets from business combination in relation to customer relationship, technology and non-compete provisions. We define non-GAAP sales and marketing expenses as sales and marketing expenses excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to customer relationship. We define non-GAAP product development expense as product development expenses excluding share-based compensation expenses and amortization of intangible assets from business combination in relation to technology. We define non-GAAP general and administrative expenses as general and administrative expenses excluding share-based compensation expenses, business combination related expenses and amortization of intangible assets from business combination in relation to non-compete provisions. We define non-GAAP loss from operations as loss from operations excluding share-based compensation expenses, amortization of intangible assets from business combination and business combination related expenses. We define non-GAAP net loss as net loss excluding share-based compensation expenses, amortization of intangible assets from business combination and business combination related expenses. We define non-GAAP EBITDA loss as net loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for share-based compensation expenses, amortization of intangible assets from business combination, business combination related expenses and other non-operating items.

We present non-GAAP financial measures because they are used by our management to evaluate our operating performance. We also believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies. A limitation of using non-GAAP financial measures is that non-GAAP measures exclude share-based compensation charges that have been and will continue to be significant recurring expenses in Youku Tudou's business for the foreseeable future.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP financial measures" at the end of this release.

For more information, please contact:

Ryan Cheung
Corporate Finance Senior Director
Youku Tudou Inc.
Tel: (+8610) 5885-1881 x6090
Email: ryan.cheung@youku.com