Ku6.com To Become First US-Listed Chinese Online Video Site
Ku6, acquired by Shanda (Nasdaq:SNDA) controlled Hurray Holdings (Nasdaq:HRAY) in November 2009, is now poised to become the first US-listed pure play Chinese online video site. I have written extensively about China’s online video business. To date more than $500M has been invested into various Chinese firms, with the field effectively winnowed down to four standalone firms-Youku, Tudou, Qiyi and Ku6-as well as listed portals like Tencent, Sina and Sohu.
Hurray announced last night that it is selling all its businesses but Ku6 to Shanda in exchange for approximately $37M Cash (the full conference call transcript is here). Hurray is purchasing an online in-game radio business (Shanghai Yisheng Network Science and Technology Co., Ltd) from Shanda for approximately $26M in newly issued Hurray shares. Hurray will change its name to Ku6.com; no word if the company will change its stock ticker. (KLIU appears to be available.)
Ku6, the third or fourth largest online video site in China by traffic, is burning a lot of cash. For February and March 2010, the two months after the Hurray-Ku6 acquisition closed, the Ku6 operations generated $1.2M in revenue and $7.1M in net losses. For the full quarter the Ku6 business probably generated $1.6M in revenue and $10M+ in losses. Online video is expensive.
As much cash as the Ku6 is burning, Hurray will not run out of money any time soon. The company ended Q1 with $52.6M in cash, and with the $36M cash payment from Shanda, as well $5M or so from the sale in May of Huayi Music, Hurray has $90M+ on its balance sheet (though there was a large spike in accounts payable in Q1.) With $90M, Hurray/Ku6.com is the best funded standalone online video site in China.
Youku.com, which raised another $40M late last year, is the leader in traffic and revenue, generating approximately $30M in 2009 gross revenue, and $18-20M in net revenue after “rebates”. Youku is not profitable, though it says profits are in sight, and word on the street is that bankers are telling the CEO Victor Koo that he may be able to go public this year. Tudou is behind Youku, also losing money, and has not yet announced a needed and rumored new fundraising. Both Tudou and Youku are growing revenues rapidly.
Having a listed pure play may put pressure on the private Chinese video firms. First, interested investors, both hedge funds and VCs whose mandate allows them to buy public shares, can now buy public, relatively liquid shares to get exposure to the rapidly growing Chinese online video advertising market. Second, Chen Tianqiao and Shanda have massive resources and many ways to help Ku6 quickly increase traffic and revenue. Third, Ku6 now has a currency, however cheap, with which to deal deals, and a platform that could allow it to more easily raise cash. Fourth, Hurray’s market cap is low, and if it stays low it may keep multiples and valuations down for Youku and Tudou, while they are still burning cash and looking for exits and/or more money.
I would not bet against Shanda CEO Chen Tianqiao.
Please tell me what you think in the comments.
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Related posts:
- Chinese Video Site Tudou Raises $50M Series E
- Qiyi, Baidu’s Hulu Clone, Launches. Time For Consolidation in China’s Online Video Industry?
- Will Investment Ever Stop Flowing Into Chinese Video Sites?
- What A Downgrade of Tencent Says About China’s Online Gaming Sector
- Comscore Ranks Top 30 Global Internet Properties, Undercounts Chinese Sites
This is very interesting, as Shanda and Baidu have deep pockets, and will back Ku6 and Qiyi as their respective horses. This leaves Tudou and Youku as the online video pure plays, who rely on VC funding for their business, but are getting closer to breakeven.
The next year should be very interesting.