Exhibit 99.2
Youku Tudou Announces Third Quarter 2014 Unaudited Financial Results
Consumer Revenues Grew 473% Year-on-Year; Share Repurchase Totaling US$300 Million Completed
BEIJING, China, November 14, 2014 — Youku Tudou Inc. (NYSE: YOKU), China’s leading Internet television company (“Youku Tudou” or the “Company”), today announced its unaudited financial results for third quarter 2014.
Third Quarter 2014 Highlights1
· Net revenues were RMB1.11 billion (US$180.3 million), a 29% increase from the corresponding period in 2013.
· Gross profit was RMB246.9 million (US$40.2 million), a 200% increase from the corresponding period in 2013. Non-GAAP gross profit was RMB260.5 million (US$42.4 million) in the third quarter of 2014, an increase of 159% from the corresponding period in 2013.
· Net loss was RMB181.4 million (US$29.6 million), a 17% decrease from the corresponding period in 2013. Non-GAAP net loss was RMB102.7 million (US$16.7 million) in the third quarter of 2014, as compared to RMB159.6 million (US$26.0 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 third 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 third quarter of 2014 amounted to RMB0.50 (US$0.08) and RMB0.50 (US$0.08), respectively.
· Cash, cash equivalents, restricted cash and short-term investments totaled RMB8.7 billion (US$1.4 billion) as of September 30, 2014.
· Acquisition of property and equipment for the third quarter of 2014 was RMB41.3 million (US$6.7 million).
· Acquisition of intangible assets for the third quarter of 2014 was RMB344.1 million (US$56.1 million).
· Share repurchases totaling US$300 million completed the share repurchase program authorized by the Board in August 2014.
“We made positive progress in the third quarter in improving the effectiveness of multi-screen advertising solutions and growing our new consumer revenue streams, which drove the top line growth momentum of 29% increase year-on-year versus 27% growth in the second quarter. The new marketing solutions we announced with Alibaba through our strategic cooperation on big data places us uniquely at the forefront of new trends in digital advertising. Our new consumer businesses enjoyed rapid growth and may help spur further top line growth in future quarters. Meanwhile, our Youku mobile video app is now ranked the second most popular mobile app in terms of user time spent after WeChat,” said Victor Koo, Chairman and Chief Executive Officer of Youku Tudou. “At the same time, we will continue to invest decisively in the future growth of advertising and consumer business, our content eco-system and continued leadership in multi-screen product development. We believe these investments, such as in headcount increase and marketing for new consumer businesses and our original content productions, will help us further capitalize on the opportunities ahead of us in the multi-screen Internet era, and structurally step up the monetization of our mass user base and brand leadership.”
Dele Liu, President of Youku Tudou, added, “With regards to our content strategy, we continued to book further success in establishing a comprehensive content production and distribution eco-system. One of the key highlights for the quarter was the establishment of Heyi Pictures, our movie production and investment division, which is
1 The reporting currency of the Company is Renminbi (“RMB”), but for the convenience of the reader, the amounts presented throughout the release are in US dollars (“US$”). Unless otherwise noted, all conversions from RMB to US$ are made at a rate of RMB6.1380 to US$1.00, the effective noon buying rate as of September 30, 2014 in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.
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China’s first online and offline film company to incubate content IP, scale up content from micro-movies to silver screen movies and to grow fan communities that can support films and new consumer monetization model. Our most recent deals on the production of Internet-based adaptations to television blockbusters Big Brother and The Voice Kids in 2015 are testament to the growing convergence in online and offline media and entertainment.”
Third Quarter 2014 Results
Net revenues were RMB1.11 billion (US$180.3 million) in the third quarter of 2014, a 29% increase from the corresponding period in 2013, meeting net revenues guidance previously announced by the Company.
Advertising net revenues were RMB985.2 million (US$160.5 million) in the third quarter of 2014, a 32% increase from the corresponding period in 2013, 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.
Consumer revenues, which are mainly derived from our subscription-based and pay-per-view services, were RMB41.8 million (US$6.8 million) in the third quarter of 2014, a 473% increase from the corresponding period in 2013. The growth was primarily attributable to the expansion of our subscriber base and pay-per-view orders.
Bandwidth costs as a component of cost of revenues were RMB229.7 million (US$37.4 million) in the third quarter of 2014, representing 21% of net revenues, as compared to 21% of net revenues for the corresponding period in 2013.
Content costs as a component of cost of revenues were RMB501.8 million (US$81.8 million) in the third quarter of 2014, representing 45% of net revenues as compared to 58% of net revenues for the corresponding period in 2013. Non-GAAP content costs were RMB488.2 million (US$79.5 million) in the third quarter of 2014, representing 44% of net revenues, as compared to 56% of net revenues for the corresponding period in 2013.
Gross profit was RMB246.9 million (US$40.2 million) in the third quarter of 2014, an increase of 200% from the corresponding period in 2013. Non-GAAP gross profit was RMB260.5 million (US$42.4 million) in the third quarter of 2014, an increase of 159% from the corresponding period in 2013 due to strong operating leverage.
Operating expenses were RMB452.5 million (US$73.7 million) in the third quarter of 2014, as compared to RMB312.8 million (US$51.0million) for the corresponding period in 2013. Non-GAAP operating expenses were RMB387.4 million (US$63.1 million) in the third quarter of 2014, as compared to RMB271.9 million (US$44.3 million) for the corresponding period in 2013. Detailed discussion of each component of operating expenses is as follows:
Sales and marketing expenses were RMB287.0 million (US$46.8 million) in the third quarter of 2014, as compared to RMB171.8 million (US$28.0 million) for the corresponding period in 2013. Non-GAAP sales and marketing expenses were RMB262.9 million (US$42.8 million) in the third quarter of 2014, as compared to RMB157.3 million (US$25.6 million) for the corresponding period in 2013. This increase was primarily due to increases in marketing expenses and commission expenses paid to our sales force in line with our revenue growth.
Product development expenses were RMB112.4 million (US$18.3 million) in the third quarter of 2014, as compared to RMB78.6 million (US$12.8 million) for the corresponding period in 2013. Non-GAAP product development expenses were RMB93.6 million (US$15.2 million) in the third quarter of 2014, as compared to RMB67.5 million (US$11.0 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 RMB53.0 million (US$8.6 million) in the third quarter of 2014, as compared to RMB62.5 million (US$10.2 million) for the corresponding period in 2013. Non-GAAP general and administrative expenses were RMB31.0 million (US$5.0 million) in the third quarter of 2014, a decrease of 34% from the corresponding period in 2013.
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Net loss was RMB181.4 million (US$29.6 million) in the third quarter of 2014, as compared to RMB218.6 million (US$35.6 million) for the corresponding period in 2013. Non-GAAP net loss was RMB102.7 million (US$16.7 million) in the third quarter of 2014, as compared to RMB159.6 million (US$26.0 million) from the corresponding period in 2013.
Non-GAAP adjusted EBITDA loss was RMB88.9 million (US$14.5 million) in the third quarter of 2014, as compared to RMB141.1 million (US$23.0 million) from the corresponding period in 2013.
Departure of Chief Financial Officer
The Company today announced that its Chief Financial Officer, Mr. Ge Xu, is resigning from his position at the Company due to personal reasons, and will be effective when the Company submits its 2014 20-F filing.
Mr. Xu joined the Company in October 2011 and has made significant contributions to the Company’s growth and development, including enhancing the Company’s financial systems and internal controls.
Mr. Victor Koo, Chairman and Chief Executive Officer of Youku Tudou, said, “I’d like to thank Michael for his significant contributions to the Company. We wish him the best with his future endeavors.”
“During these years in Youku Tudou, I had a lot of fun and excitement, which not many people are privileged to experience. For this, I am grateful to all my colleagues,” commented Mr. Xu.
The Company noted that there were no disagreements between Mr. Xu and Youku Tudou’s Board of Directors or management and that his departure is not related to the Company’s operations, policies, practices or any issues regarding the integrity of Youku Tudou’s financial statements or accounting policies and practices.
Business Outlook
For the fourth quarter of 2014, the Company expects net revenues will be between RMB1.15 billion and RMB1.22 billion, with advertising net revenues contributing between RMB1.01 billion and RMB1.07 billion. This forecast reflects the Company’s current and preliminary view, which is subject to change.
Recent Development
As of November 13, 2014, the Company has purchased approximately 16.1 million ADSs in the open market for a total consideration of approximately US$300.0 million under its share repurchase program approved by the Company’s board of directors in August 2014, which has hereby been completed.
Conference Call Information
Youku Tudou’s management will host an earnings conference call at 8:00 p.m. U.S. Eastern Time on November 13, 2014 (9:00 a.m. Beijing/Hong Kong Time on November 14, 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: | | +1-800-742-9301 |
International Dial In: | | +61-2-8373-3610 |
Mainland China Dial In: | | +86-800-870-0210 / +86-400-120-3170 |
Hong Kong Dial In: | | +852-3051-2792 |
A replay of the call will be available by dialing +61 2 8199 0299 and entering passcode 31852718. The replay will be available through November 21, 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.
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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 profit or loss from operations, non-GAAP net profit or loss and non-GAAP EBITDA profit or 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 profit or loss from operations as profit or 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 profit or loss as net loss excluding share-based compensation expenses, amortization of intangible assets from
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business combination and business combination related expenses. We define non-GAAP EBITDA profit or loss as net profit or 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
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YOUKU TUDOU INC.
CONSOLIDATED BALANCE SHEETS
| | As of | |
(Amounts in thousands, except for number of shares) | | December 31, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | US$ | |
| | | | (Unaudited) | | (Unaudited) | |
ASSETS | | | | | | | |
| | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | 1,764,221 | | 5,073,522 | | 826,576 | |
Restricted cash | | 2,679 | | 558,318 | | 90,961 | |
Short-term investments | | 1,409,439 | | 3,112,495 | | 507,086 | |
Accounts receivable, net | | 1,370,031 | | 1,619,947 | | 263,921 | |
Intangible assets, net | | 51,942 | | 150,475 | | 24,515 | |
Amounts due from related party | | — | | 72,040 | | 11,737 | |
Deferred tax assets | | 7,843 | | 7,843 | | 1,278 | |
Prepayments and other assets | | 82,300 | | 109,426 | | 17,828 | |
Total current assets | | 4,688,455 | | 10,704,066 | | 1,743,902 | |
| | | | | | | |
Non-current assets: | | | | | | | |
Property and equipment, net | | 222,229 | | 281,937 | | 45,933 | |
Long-term investment | | — | | 50,000 | | 8,146 | |
Intangible assets, net | | 1,197,671 | | 1,380,433 | | 224,899 | |
Capitalized content production costs | | 1,176 | | 9,497 | | 1,547 | |
Prepayments and other assets | | 197,856 | | 289,739 | | 47,204 | |
Goodwill | | 4,262,569 | | 4,262,569 | | 694,456 | |
Total non-current assets | | 5,881,501 | | 6,274,175 | | 1,022,185 | |
| | | | | | | |
TOTAL ASSETS | | 10,569,956 | | 16,978,241 | | 2,766,087 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | 213,825 | | 487,766 | | 79,467 | |
Advances from customers | | 25,081 | | 25,451 | | 4,146 | |
Amounts due to related party | | — | | 118 | | 19 | |
Accrued expenses and other liabilities | | 1,124,342 | | 1,378,582 | | 224,598 | |
Total current liabilities | | 1,363,248 | | 1,891,917 | | 308,230 | |
| | | | | | | |
Non-current liabilities: | | | | | | | |
Deferred tax liability | | 219,519 | | 219,519 | | 35,764 | |
Other liabilities | | 4,070 | | 8,166 | | 1,330 | |
Total non-current liabilities | | 223,589 | | 227,685 | | 37,094 | |
| | | | | | | |
Total liabilities | | 1,586,837 | | 2,119,602 | | 345,324 | |
| | | | | | | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Shareholders’ equity: | | | | | | | |
Class A Ordinary Shares (US$0.00001 par value, 9,340,238,793 authorized, 2,356,529,401 and 3,114,197,551 issued as of December 31, 2013 and September 30, 2014, respectively, 2,356,529,401 and 2,917,676,233 outstanding as of December 31, 2013 and September 30, 2014, respectively) | | 154 | | 201 | | 33 | |
Class B Ordinary Shares (US$0.00001 par value, 659,761,207 authorized, 659,561,893 and 645,691,903 issued and outstanding as of December 31, 2013 and September 30, 2014, respectively) | | 49 | | 48 | | 8 | |
Additional paid-in capital | | 11,058,360 | | 18,790,468 | | 3,061,334 | |
Treasury stock (at cost, nil and 196,521,318 as of December 31, 2013 and September 30, 2014, respectively) | | — | | (1,293,644 | ) | (210,760 | ) |
Statutory reserves | | 2,063 | | 2,063 | | 336 | |
Accumulated deficit | | (1,878,454 | ) | (2,448,972 | ) | (398,985 | ) |
Accumulated other comprehensive loss | | (199,053 | ) | (191,525 | ) | (31,203 | ) |
Total shareholders’ equity | | 8,983,119 | | 14,858,639 | | 2,420,763 | |
| | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | 10,569,956 | | 16,978,241 | | 2,766,087 | |
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YOUKU TUDOU INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands, except for number of shares and ADS and per share and per ADS | | For the Three Months Ended | | For the Nine Months Ended | |
data) | | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | | | | | |
Net revenues (including advertising net revenues from related party amounting to RMB26,738, and RMB69,763 for the three months ended June 30 and September 30, 2014, respectively, and RMB96,501 for the nine months ended September 30, 2014) | | 857,743 | | 958,719 | | 1,106,641 | | 180,294 | | 2,127,197 | | 2,765,734 | | 450,592 | |
| | | | | | | | | | | | | | | |
Cost of revenues (Note 1) | | (775,436 | ) | (750,107 | ) | (859,774 | ) | (140,074 | ) | (1,840,483 | ) | (2,224,689 | ) | (362,445 | ) |
| | | | | | | | | | | | | | | |
Gross profit | | 82,307 | | 208,612 | | 246,867 | | 40,220 | | 286,714 | | 541,045 | | 88,147 | |
| | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | |
Product development | | (78,622 | ) | (99,116 | ) | (112,434 | ) | (18,318 | ) | (201,501 | ) | (292,250 | ) | (47,613 | ) |
Sales and marketing | | (171,763 | ) | (212,826 | ) | (287,038 | ) | (46,764 | ) | (464,564 | ) | (686,406 | ) | (111,828 | ) |
General and administrative | | (62,458 | ) | (74,457 | ) | (53,009 | ) | (8,636 | ) | (221,377 | ) | (174,289 | ) | (28,395 | ) |
Total operating expenses | | (312,843 | ) | (386,399 | ) | (452,481 | ) | (73,718 | ) | (887,442 | ) | (1,152,945 | ) | (187,836 | ) |
| | | | | | | | | | | | | | | |
Loss from operations | | (230,536 | ) | (177,787 | ) | (205,614 | ) | (33,498 | ) | (600,728 | ) | (611,900 | ) | (99,689 | ) |
| | | | | | | | | | | | | | | |
Interest income | | 7,284 | | 9,923 | | 22,694 | | 3,697 | | 21,553 | | 38,670 | | 6,299 | |
Interest expenses | | — | | — | | — | | — | | (545 | ) | — | | — | |
Other, net | | 4,694 | | 3,441 | | 1,542 | | 251 | | 23,695 | | 2,724 | | 444 | |
Total other income, net | | 11,978 | | 13,364 | | 24,236 | | 3,948 | | 44,703 | | 41,394 | | 6,743 | |
| | | | | | | | | | | | | | | |
Loss before income taxes | | (218,558 | ) | (164,423 | ) | (181,378 | ) | (29,550 | ) | (556,025 | ) | (570,506 | ) | (92,946 | ) |
Income taxes | | (80 | ) | (12 | ) | — | | — | | (138 | ) | (12 | ) | (2 | ) |
| | | | | | | | | | | | | | | |
Net loss | | (218,638 | ) | (164,435 | ) | (181,378 | ) | (29,550 | ) | (556,163 | ) | (570,518 | ) | (92,948 | ) |
| | | | | | | | | | | | | | | |
Other comprehensive (loss) income, before tax | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | (10,547 | ) | (13,645 | ) | 214 | | 35 | | (49,970 | ) | 7,528 | | 1,226 | |
Other comprehensive (loss) income, before tax | | (10,547 | ) | (13,645 | ) | 214 | | 35 | | (49,970 | ) | 7,528 | | 1,226 | |
Income tax expense related to components of other comprehensive (loss) income | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | | | | | | | |
Other comprehensive (loss) income, net of tax | | (10,547 | ) | (13,645 | ) | 214 | | 35 | | (49,970 | ) | 7,528 | | 1,226 | |
| | | | | | | | | | | | | | | |
Net loss per share, basic and diluted | | (0.07 | ) | (0.05 | ) | (0.05 | ) | (0.01 | ) | (0.19 | ) | (0.17 | ) | (0.03 | ) |
Net loss per ADS (each ADS represents 18 class A ordinary shares), basic and diluted | | (1.31 | ) | (0.88 | ) | (0.88 | ) | (0.14 | ) | (3.36 | ) | (3.05 | ) | (0.50 | ) |
Shares used in computation, basic and diluted | | 2,995,701,280 | | 3,355,310,411 | | 3,724,534,275 | | 3,724,534,275 | | 2,977,998,887 | | 3,369,848,757 | | 3,369,848,757 | |
ADSs used in computation, basic and diluted | | 166,427,848 | | 186,406,133 | | 206,918,571 | | 206,918,571 | | 165,444,382 | | 187,213,819 | | 187,213,819 | |
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The accompanying notes are an integral part of the press release.
Note 1. Cost of Revenues
| | For the Three Months Ended | | For the Nine Months Ended | |
(Amounts in thousands) | | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
Cost of revenues: | | | | | | | | | | | | | | | |
Value added, business taxes and surcharges | | 75,480 | | 89,550 | | 97,760 | | 15,927 | | 198,739 | | 250,268 | | 40,774 | |
Bandwidth costs | | 181,670 | | 213,538 | | 229,714 | | 37,425 | | 506,826 | | 645,141 | | 105,106 | |
Depreciation of servers and other equipment | | 21,827 | | 28,756 | | 30,472 | | 4,965 | | 65,681 | | 83,534 | | 13,608 | |
Content costs | | 496,459 | | 418,263 | | 501,828 | | 81,757 | | 1,069,237 | | 1,245,746 | | 202,957 | |
Total Cost of Revenues | | 775,436 | | 750,107 | | 859,774 | | 140,074 | | 1,840,483 | | 2,224,689 | | 362,445 | |
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YOUKU TUDOU INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | For the Three Months Ended | | For the Nine Months Ended | |
(Amounts in thousands) | | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
Cash flows from operating activities: | | | | | | | | | | | | | | | |
Net loss | | (218,638 | ) | (164,435 | ) | (181,378 | ) | (29,550 | ) | (556,163 | ) | (570,518 | ) | (92,948 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | |
Depreciation and impairment of fixed assets | | 30,342 | | 36,328 | | 38,054 | | 6,200 | | 84,639 | | 106,265 | | 17,313 | |
Bad debt expense | | 19,945 | | 5,247 | | (12,546 | ) | (2,044 | ) | 37,056 | | (13,772 | ) | (2,244 | ) |
Amortisation and impairment of intangible assets and capitalized content production costs | | 327,334 | | 229,561 | | 306,460 | | 49,928 | | 642,848 | | 717,798 | | 116,943 | |
Amortization of long-term debt discounts | | — | | — | | — | | — | | 313 | | — | | — | |
Loss on disposal of property and equipment | | 788 | | 128 | | 10 | | 2 | | 838 | | 228 | | 37 | |
Foreign exchange loss (gain) | | 2,540 | | 846 | | (58 | ) | (9 | ) | 2,018 | | 2,952 | | 481 | |
Share-based compensation | | 48,918 | | 82,131 | | 72,372 | | 11,791 | | 135,297 | | 224,723 | | 36,612 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | | |
Restricted cash | | 6,759 | | (1 | ) | (555,636 | ) | (90,524 | ) | 7,453 | | (555,639 | ) | (90,524 | ) |
Accounts receivable | | (161,184 | ) | (244,056 | ) | (171,241 | ) | (27,899 | ) | (489,526 | ) | (236,144 | ) | (38,472 | ) |
Amounts due from related party | | — | | (62,620 | ) | (9,420 | ) | (1,535 | ) | — | | (72,040 | ) | (11,737 | ) |
Prepayments and other assets | | 37,051 | | (21,120 | ) | 21,958 | | 3,577 | | 60,192 | | (9,777 | ) | (1,593 | ) |
Capitalized content production costs | | (3,004 | ) | (6,371 | ) | (17,511 | ) | (2,854 | ) | (29,425 | ) | (26,854 | ) | (4,375 | ) |
Accounts payable | | 702 | | 8,631 | | 17,079 | | 2,783 | | 2,017 | | 30,284 | | 4,934 | |
Advances from customers | | 9,918 | | (3,229 | ) | 1,783 | | 290 | | 44,195 | | 370 | | 60 | |
Accrued expenses and other liabilities | | 20,027 | | (16,266 | ) | 236,276 | | 38,496 | | 120,541 | | 249,601 | | 40,664 | |
Amounts due to related party | | — | | 70 | | 48 | | 8 | | — | | 118 | | 19 | |
Net cash provided by (used in) operating activities | | 121,498 | | (155,156 | ) | (253,750 | ) | (41,340 | ) | 62,293 | | (152,405 | ) | (24,830 | ) |
| | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | |
Acquisition of property and equipment | | (67,252 | ) | (84,968 | ) | (41,295 | ) | (6,728 | ) | (129,165 | ) | (154,454 | ) | (25,164 | ) |
Proceeds received from maturity of short-term investments | | 1,358,761 | | 66,037 | | 1,363,276 | | 222,104 | | 2,017,412 | | 2,561,772 | | 417,363 | |
Short-term investments placed with financial institutions | | (1,405,173 | ) | (4,698 | ) | (2,859,798 | ) | (465,917 | ) | (2,329,822 | ) | (4,255,735 | ) | (693,342 | ) |
Proceeds from disposal of property and equipment | | — | | 10 | | 88 | | 14 | | 1,282 | | 278 | | 45 | |
Acquisition of shares of an investee | | — | | — | | (50,000 | ) | (8,146 | ) | — | | (50,000 | ) | (8,146 | ) |
Acquisition of intangible assets | | (171,620 | ) | (246,320 | ) | (344,142 | ) | (56,067 | ) | (513,041 | ) | (756,353 | ) | (123,225 | ) |
Net cash used in investing activities | | (285,284 | ) | (269,939 | ) | (1,931,871 | ) | (314,740 | ) | (953,334 | ) | (2,654,492 | ) | (432,469 | ) |
| | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | |
Exercise of employee stock options | | 27,676 | | 7,355 | | 6,086 | | 992 | | 92,351 | | 25,250 | | 4,114 | |
Principal repayments on long-term debt | | (1,111 | ) | — | | — | | — | | (7,677 | ) | — | | — | |
Repurchase of ADSs | | — | | — | | (1,293,644 | ) | (210,760 | ) | — | | (1,293,644 | ) | (210,760 | ) |
Proceeds from Ali investment, net of issuance costs | | — | | 7,387,520 | | (7,504 | ) | (1,223 | ) | — | | 7,380,016 | | 1,202,349 | |
Net cash provided by (used in) financing activities | | 26,565 | | 7,394,875 | | (1,295,062 | ) | (210,991 | ) | 84,674 | | 6,111,622 | | 995,703 | |
Effect of exchange rate changes on cash and cash equivalents | | (13,087 | ) | (14,491 | ) | 272 | | 44 | | (51,988 | ) | 4,576 | | 746 | |
Net (decrease) increase in cash and cash equivalents | | (150,308 | ) | 6,955,289 | | (3,480,411 | ) | (567,027 | ) | (858,355 | ) | 3,309,301 | | 539,150 | |
Cash and cash equivalents at the beginning of the period | | 947,810 | | 1,598,644 | | 8,553,933 | | 1,393,603 | | 1,655,857 | | 1,764,221 | | 287,426 | |
Cash and cash equivalents at the end of the period | | 797,502 | | 8,553,933 | | 5,073,522 | | 826,576 | | 797,502 | | 5,073,522 | | 826,576 | |
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Reconciliations of Non-GAAP results of operations measures to the nearest comparable GAAP financial measures (1) (Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), unaudited)
1. Non-GAAP Content Costs
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
Content costs | | 496,459 | | 418,263 | | 501,828 | | 81,757 | | 1,069,237 | | 1,245,746 | | 202,957 | |
Deduct: share-based compensation | | 12,136 | | 12,694 | | 11,077 | | 1,805 | | 24,264 | | 35,994 | | 5,864 | |
Deduct: amortization of intangible assets from business combination | | 5,984 | | 2,631 | | 2,557 | | 417 | | 22,056 | | 7,671 | | 1,250 | |
Non-GAAP content costs | | 478,339 | | 402,938 | | 488,194 | | 79,535 | | 1,022,917 | | 1,202,081 | | 195,843 | |
2. Non-GAAP Gross Profit
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
Gross profit | | 82,307 | | 208,612 | | 246,867 | | 40,220 | | 286,714 | | 541,045 | | 88,147 | |
Add back: share-based compensation | | 12,136 | | 12,694 | | 11,077 | | 1,805 | | 24,264 | | 35,994 | | 5,864 | |
Add back: amortization of intangible assets from business combination | | 5,984 | | 2,631 | | 2,557 | | 417 | | 22,056 | | 7,671 | | 1,250 | |
Non-GAAP gross profit | | 100,427 | | 223,937 | | 260,501 | | 42,442 | | 333,034 | | 584,710 | | 95,261 | |
3. Non-GAAP Operating Expenses
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
Operating expenses | | 312,843 | | 386,399 | | 452,481 | | 73,718 | | 887,442 | | 1,152,945 | | 187,836 | |
Deduct: share-based compensation | | 36,782 | | 69,437 | | 61,295 | | 9,986 | | 111,033 | | 188,729 | | 30,748 | |
Deduct: amortization of intangible assets from business combination | | 4,155 | | 3,743 | | 3,743 | | 610 | | 12,465 | | 11,229 | | 1,828 | |
Non-GAAP operating expenses | | 271,906 | | 313,219 | | 387,443 | | 63,122 | | 763,944 | | 952,987 | | 155,260 | |
4. Non-GAAP Sales and Marketing Expenses
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
Sales and marketing expenses | | 171,763 | | 212,826 | | 287,038 | | 46,764 | | 464,564 | | 686,406 | | 111,828 | |
Deduct: share-based compensation | | 12,366 | | 24,824 | | 22,256 | | 3,626 | | 35,135 | | 68,252 | | 11,120 | |
Deduct: amortization of intangible assets from business combination | | 2,077 | | 1,871 | | 1,871 | | 305 | | 6,231 | | 5,613 | | 913 | |
Non-GAAP sales and marketing expenses | | 157,320 | | 186,131 | | 262,911 | | 42,833 | | 423,198 | | 612,541 | | 99,795 | |
5. Non-GAAP Product Development Expenses
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
Product development expenses | | 78,622 | | 99,116 | | 112,434 | | 18,318 | | 201,501 | | 292,250 | | 47,613 | |
Deduct: share-based compensation | | 9,748 | | 19,006 | | 17,624 | | 2,871 | | 26,605 | | 53,836 | | 8,771 | |
Deduct: amortization of intangible assets from business combination | | 1,395 | | 1,257 | | 1,257 | | 205 | | 4,185 | | 3,771 | | 614 | |
Non-GAAP product development expenses | | 67,479 | | 78,853 | | 93,553 | | 15,242 | | 170,711 | | 234,643 | | 38,228 | |
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6. Non-GAAP General and Administrative Expenses
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
General and administrative expenses | | 62,458 | | 74,457 | | 53,009 | | 8,636 | | 221,377 | | 174,289 | | 28,395 | |
Deduct: share-based compensation | | 14,668 | | 25,607 | | 21,415 | | 3,489 | | 49,293 | | 66,641 | | 10,857 | |
Deduct: amortization of intangible assets from business combination | | 683 | | 615 | | 615 | | 100 | | 2,049 | | 1,845 | | 301 | |
Non-GAAP general and administrative expenses | | 47,107 | | 48,235 | | 30,979 | | 5,047 | | 170,035 | | 105,803 | | 17,237 | |
7. Non-GAAP Loss from Operations
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
Loss from operations | | (230,536 | ) | (177,787 | ) | (205,614 | ) | (33,498 | ) | (600,728 | ) | (611,900 | ) | (99,689 | ) |
Add back: share-based compensation | | 48,918 | | 82,131 | | 72,372 | | 11,791 | | 135,297 | | 224,723 | | 36,612 | |
Add back: amortization of intangible assets from business combination | | 10,139 | | 6,374 | | 6,300 | | 1,027 | | 34,521 | | 18,900 | | 3,078 | |
Non-GAAP loss from operations | | (171,479 | ) | (89,282 | ) | (126,942 | ) | (20,680 | ) | (430,910 | ) | (368,277 | ) | (59,999 | ) |
8. Non-GAAP Net Loss
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
Net loss | | (218,638 | ) | (164,435 | ) | (181,378 | ) | (29,550 | ) | (556,163 | ) | (570,518 | ) | (92,948 | ) |
Add back: share-based compensation | | 48,918 | | 82,131 | | 72,372 | | 11,791 | | 135,297 | | 224,723 | | 36,612 | |
Add back: amortization of intangible assets from business combination | | 10,139 | | 6,374 | | 6,300 | | 1,027 | | 34,521 | | 18,900 | | 3,078 | |
Non-GAAP net loss | | (159,581 | ) | (75,930 | ) | (102,706 | ) | (16,732 | ) | (386,345 | ) | (326,895 | ) | (53,258 | ) |
9. Non-GAAP EBITDA Loss
| | For the Three Months Ended | | For the Nine Months Ended | |
| | September 30, 2013 | | June 30, 2014 | | September 30, 2014 | | September 30, 2014 | | September 30, 2013 | | September 30, 2014 | | September 30, 2014 | |
| | RMB | | RMB | | RMB | | US$ | | RMB | | RMB | | US$ | |
Net loss | | (218,638 | ) | (164,435 | ) | (181,378 | ) | (29,550 | ) | (556,163 | ) | (570,518 | ) | (92,948 | ) |
Add back: | | | | | | | | | | | | | | | |
Depreciation and amortization (excluding amortization of acquired content) (2) | | 30,356 | | 36,341 | | 38,068 | | 6,202 | | 84,682 | | 106,306 | | 17,319 | |
Interest income | | (7,284 | ) | (9,923 | ) | (22,694 | ) | (3,697 | ) | (21,553 | ) | (38,670 | ) | (6,299 | ) |
Interest expenses | | — | | — | | — | | — | | 545 | | — | | — | |
Income taxes | | 80 | | 12 | | — | | — | | 138 | | 12 | | 2 | |
EBITDA loss | | (195,486 | ) | (138,005 | ) | (166,004 | ) | (27,045 | ) | (492,351 | ) | (502,870 | ) | (81,926 | ) |
| | | | | | | | | | | | | | | |
Adjustments: | | | | | | | | | | | | | | | |
Share-based compensation | | 48,918 | | 82,131 | | 72,372 | | 11,791 | | 135,297 | | 224,723 | | 36,612 | |
Amortization of intangible assets from business combination | | 10,139 | | 6,374 | | 6,300 | | 1,027 | | 34,521 | | 18,900 | | 3,078 | |
Others, net | | (4,694 | ) | (3,441 | ) | (1,542 | ) | (251 | ) | (23,695 | ) | (2,724 | ) | (444 | ) |
Non-GAAP EBITDA loss | | (141,123 | ) | (52,941 | ) | (88,874 | ) | (14,478 | ) | (346,228 | ) | (261,971 | ) | (42,680 | ) |
(1) For more information on the Non-GAAP financial measures, please see the section captioned “About Non-GAAP Financial Measures” in this earnings release.
(2) The amortization expense was related to an advertising license acquired in April 2010. The amortization of acquired content was not treated as a Non-GAAP adjustment.
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