China's Top Online Video Site Youku Files for $150M IPO

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China's largest video sharing site has filed for an initial public offering on the New York Stock Exchange as it seeks to raise US$150 million to fund expansion amid tight competition.

The site, Youku, claims a market share of 20 percent, according to Beijing-based research firm Analysys International. But the filing, which took place on Monday, comes about a week after Youku's rival Tudou filed for an initial public offering on the Nasdaq Stock Exchange for $120 million. Tudou holds a market share of 16 percent.

Chinese sites like Youku and Tudou are hoping to capitalize on the country's video hosting market, which is expected to continue growing. Currently, the country has about 264 million Internet users who watch videos online, according to the China Internet Network Information Center. Meanwhile, U.S. sites like YouTube and Hulu are either blocked or do not stream videos to China.

Youku, launched in 2006, allows users to upload videos much the same way YouTube does. But about 70 percent of the Youku's videos are from licensed content such as TV shows and movies. Another 5 percent belong to videos the company produced on its own.

But like many video hosting sites, Youku faces the challenge of making its business profitable. To maintain its operations and host so many videos, the company has to pay for expensive Internet bandwidth costs and purchase the rights to upload licensed content.

According to the IPO filing, Youku saw net losses increase from 136.3 million yuan ($20.5 million) in the first nine months of 2009, to 167 million yuan ($25.1 million) for the same period in 2010.

The good news for Youku is that revenues, which are primarily driven by online advertising, continue to climb for the company. In the first nine months of 2010, Youku's revenues reached 234.6 million yuan ($35.3 million), an increase from 99.8 million yuan ($15 million) from the same period in 2009.

Youku is currently financed through private investors through which it has raised $110 million, it said.

Youku plans on using the proceeds from the IPO to invest in marketing, acquiring more videos, and develop its technology, infrastructure and products. An IPO price has yet to be fixed.

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