Tudou (Nasdaq: TUDO) released its unaudited financial results for the third quarter of 2011 (ending September 30) on November 15. The report showed that Tudou's revenue in Q3 was RMB 149.7 million (approximately USD 23.5 million), an increase of 52.1% year-over-year, with a net profit of RMB 52.5 million (approximately USD 8.2 million), compared to a net loss of RMB 0.5 million during the same period last year.
### Third Quarter Financial Highlights
- Net revenues for Q3 were RMB 149.7 million (approximately USD 23.5 million), up 52.1% year-over-year and 28.3% quarter-over-quarter.
- Online advertising service revenue was RMB 126.5 million (approximately USD 19.8 million), increasing by 43.4% year-over-year and 23.8% quarter-over-quarter.
- Mobile video service revenue was RMB 16.2 million (approximately USD 2.5 million), growing by 95% year-over-year and 45.8% quarter-over-quarter.
Wang Wei, Founder, Chairman, and CEO of Tudou, stated: "We are pleased to see the continued growth in demand for Tudou's online video platform, which is evidenced by our steady revenue growth. In addition to our successful IPO on NASDAQ, we are also delighted with the strategic cooperation agreements recently reached. We believe these milestone events will bring significant benefits to our shareholders, advertisers, and internet users. Achieving these important goals would not have been possible without the support of our customers, partners, and employees."
In Q3, Tudou reached several collaborations including acquiring *Cars 2* from Disney, establishing a strategic partnership with Letv, and forming a joint venture.
Sam Lai, Director and CFO of Tudou, commented: "The results of the third quarter reflect tangible progress in our operational performance and revenue growth, which we are satisfied with. Currently, Tudou's management team is working hard to enhance our platform and services, develop user loyalty, and focus on improving the user experience. We hope to achieve these goals through a combination of organic growth, partnerships, and marketing alliances."
The company will host a conference call at 7:30 AM Eastern Time on November 15, 2011.
### Detailed Performance
#### Revenue
Net revenues in Q3 totaled RMB 149.7 million (approximately USD 23.5 million), an increase of 52.1% year-over-year and 28.3% quarter-over-quarter. This growth was primarily driven by increased online advertising service revenue, which rose by 43.4% year-over-year to RMB 126.5 million (approximately USD 19.8 million) from RMB 88.2 million in the same period last year. The increase in online advertising revenue was mainly due to higher spending per advertiser. Mobile video net revenue was RMB 16.2 million, up 95% year-over-year from RMB 8.3 million.
Tudou's revenue does not include agency fees. In Q3, Tudou paid RMB 27.9 million (approximately USD 4.4 million) in third-party advertising agency fees and related business taxes of RMB 20.2 million (approximately USD 3.2 million). In the same period last year, agency fees were RMB 16.3 million, and business taxes were RMB 13.7 million.
#### Cost of Revenue
Cost of revenue increased by 103.9% year-over-year to RMB 101.1 million (approximately USD 15.9 million) from RMB 49.6 million in the same period last year. This increase was mainly due to higher broadband costs and content costs. Broadband costs totaled RMB 44.2 million (approximately USD 6.9 million), accounting for 29.5% of net revenue, compared to RMB 26.7 million or 27.1% of net revenue in the same period last year. Content costs include amortization of paid authorized content, employee salaries and benefits, and content production costs. Total content costs were RMB 42.5 million (approximately USD 6.7 million), accounting for 28.4% of net revenue, compared to RMB 12.5 million or 12.7% of net revenue in the same period last year. The increase in content costs was mainly due to higher purchases of authorized content.
#### Gross Profit
Gross profit in Q3 was RMB 48.5 million (approximately USD 7.6 million), compared to RMB 48.8 million in the same period last year. Gross margin was 32.4%, down from 49.6% in the same period last year. The decline in gross margin was mainly due to higher broadband costs and authorized content costs.
#### Operating Expenses
Total operating expenses in Q3 were RMB 64.4 million (approximately USD 10.1 million), compared to RMB 41.5 million in the same period last year. Sales and marketing expenses were RMB 20.4 million, an increase due to hiring more sales personnel. However, stock-based compensation expenses decreased to RMB 31 million (approximately USD 4.9 million).
#### Fair Value Change of Debt Warrants
In April 2010, Tudou issued convertible bonds, and in July 2010, it issued Series E preferred shares. In Q3, Tudou recognized a fair value gain of RMB 75.6 million (approximately USD 11.9 million) due to these issuances.
#### Net Income
Net income in Q3 was RMB 52.5 million (approximately USD 8.2 million), compared to a net loss of RMB 0.5 million in the same period last year.
#### Adjusted Net Income
Excluding RMB 32.5 million in stock-based compensation expenses and RMB 75.6 million in fair value changes of debt warrants, Tudou's adjusted net loss in Q3 was RMB 55.6 million (USD 8.7 million), compared to RMB 0.2 million in the same period last year.
#### Business Outlook
For the fourth quarter of 2011, Tudou expects net revenue to grow by 55-60% year-over-year.
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