Youku Announces Fourth Quarter and Fiscal Year 2011 Unaudited Financial Results

Youku Announces Fourth Quarter and Fiscal Year 2011 Unaudited Financial Results

Fourth Quarter and Fiscal Year 2011 Net Revenues Increased by 103% and 132% Year-over-Year, respectively

BEIJING, March 12, 2012 /PRNewswire-Asia/ -- Youku Inc. (NYSE: YOKU), China's leading Internet television company ("Youku" or the "Company"), today announced its unaudited financial results for the fourth quarter and fiscal year 2011.

Fourth Quarter Highlights(1)

    --  Net revenues were RMB309.3 million (US$49.1 million), a 103% increase
        from the corresponding period in 2010.
    --  Gross profit was RMB65.6 million (US$10.4 million), a 30% increase from
        the corresponding period in 2010.
    --  Operating expenses were RMB123.0 million (US$19.5 million), a 108%
        increase from the corresponding period in 2010.
    --  Net loss was RMB49.6 million (US$7.9 million), a 32% increase from the
        corresponding period in 2010.
    --  Basic and diluted loss per ADS, each representing 18 Class A ordinary
        shares, for the fourth quarter of 2011 amounted to RMB0.43 (US$0.07) and
        RMB0.43(US$0.07), respectively.
    --  Cash, cash equivalents and short-term investments totaled RMB3.7 billion
        (US$586.8 million) as of December 31, 2011.
    --  Cash flow from operating activities for the fourth quarter of 2011 was
        RMB81.6 million (US$13.0 million), as compared to RMB10.6 million
        (US$1.7 million) for the same period in 2010.
    --  Acquisition of property and equipment for the fourth quarter of 2011 was
        RMB40.7 million (US$6.5 million), as compared to RMB17.4 million (US$2.8
        million) for the same period in 2010.
    --  Acquisition of intangible assets for the fourth quarter of 2011 was
        RMB115.0 million (US$18.3 million), as compared to RMB26.7 million
        (US$4.2 million) for the same period in 2010.

Fiscal Year 2011 Highlights

    --  Net revenues were RMB897.6 million (US$142.6 million), a 132% increase
        from 2010.
    --  Gross profit was RMB200.3 million (US$31.8 million), a 452% increase
        from 2010.
    --  Operating expenses were RMB383.6 million (US$60.9 million), a 101%
        increase from 2010.
    --  Net loss was RMB172.1 million (US$27.3 million), a 16% decrease from
        2010.
    --  Basic and diluted loss per ADS, each representing 18 Class A ordinary
        shares, for 2011 amounted to RMB1.55 (US$0.25) and RMB1.55 (US$0.25),
        respectively, as compared to RMB7.90 (US$1.26) and RMB7.90 (US$1.26),
        respectively, for 2010.
    --  Cash flow from operating activities turned positive to RMB63.9 million
        (US$10.1 million) in 2011, as compared to negative RMB106.0 million
        (US$16.8 million) in 2010.
    --  Acquisition of property and equipment in 2011 was RMB84.9 million
        (US$13.5 million), as compared to RMB46.0 million (US$7.3 million) in
        2010.
    --  Acquisition of intangible assets in 2011 was RMB490.8 million (US$78.0
        million), as compared to RMB89.2 million (US$14.2 million) in 2010.

    (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 RMB6.2939 to
     US$1.00, the effective noon buying rate as of December 30, 2011 in
     the City of New York for cable transfers of RMB as certified for
     customs purposes by the Federal Reserve Bank of New York. No
     representation is made that the RMB amounts could have been, or could
     be, converted into US$ at such rate.

"Over the course of our first year as a U.S. publicly listed company, we have experienced strong growth in both revenue and traffic that further solidified our market position as China's leading Internet television company," said Victor Koo, Chairman and Chief Executive Officer of Youku. "With the growing opportunities ahead of us, our fundamental approach to this market is to continue to make long-term investments, as scalability is central to the success of our business model."

Dele Liu, Youku's Senior Vice President and Chief Financial Officer, commented, "We are glad that we continue to enjoy strong revenue growth in 2011 as a result of our solid execution and aggressive investment in content and technology. We expect that our investment will continue to increase our competitive advantages, which will position us for long-term profitable growth."

Fourth Quarter 2011 Results

Net revenues were RMB309.3 million (US$49.1 million) in the fourth quarter of 2011, representing a 103% increase from the corresponding period in 2010 and exceeding the high end of the revenue guidance previously announced by the Company by 2%. The growth was primarily attributable to the increased use by brand advertisers of our advertising services as evidenced by the increased average spend per advertiser from RMB0.7 million to RMB1.2 million and by an increase in the number of advertisers from 245 to 296, representing a 71% and 21% increase, respectively, from the corresponding period in 2010.

Bandwidth costs as a component of cost of revenues were RMB109.7 million (US$17.4 million) in the fourth quarter of 2011, representing 35% of net revenues, compared to 34% in the corresponding period in 2010. The increase of bandwidth costs in absolute dollars was primarily due to increased bandwidth capacity to support the growth of traffic to our website to further enhance our user experience.

Content costs as a component of cost of revenues were RMB90.7 million (US$14.4 million) in the fourth quarter of 2011 with our change in accounting estimate to accelerate amortization of content costs starting in fiscal year 2011. If the Company had continued using straight-line amortization for purchased content costs as in the corresponding period in 2010, the total content costs would have been RMB62.5 million (US$9.9 million), representing 20% of net revenues in the fourth quarter of 2011 as compared to 17% in the corresponding period in 2010.

Gross profit was RMB65.6 million (US$10.4 million) in the fourth quarter of 2011, an increase of 30% compared to gross profit of RMB50.4 million (US$8.0 million) in the corresponding period in 2010. Non-GAAP gross profit, which is herein defined as gross profit excluding share-based compensation expenses, was RMB66.9 million (US$10.6 million) in the fourth quarter of 2011, an increase of 32% compared to the non-GAAP gross profit of RMB50.7 million (US$8.1 million) in the corresponding period in 2010 due to strong operating leverage.

Operating expenses were RMB123.0 million (US$19.5 million) in the fourth quarter of 2011, an increase of 108% compared to operating expenses of RMB59.0 million (US$9.4 million) in the corresponding period in 2010. Non-GAAP operating expenses, which is herein defined as operating expenses excluding share-based compensation expenses, were RMB108.7 million (US$17.3 million) in the fourth quarter of 2011, compared to the non-GAAP operating expenses of RMB54.7 million (US$8.7 million) in the corresponding period in 2010. The increase was primarily due to increases in sales and marketing expenses, product development expenses and general and administrative expenses as a result of the substantial growth of our business. Detailed discussion of each component of operating expenses is as follows?

Sales and marketing expenses were RMB66.9 million (US$10.6 million) in the fourth quarter of 2011, an increase of 73% compared to sales and marketing expenses of RMB38.7 million (US$6.1 million) in the corresponding period in 2010. Non-GAAP sales and marketing expenses, which is herein defined as sales and marketing expenses excluding share-based compensation expenses, were RMB64.4million (US$10.2 million) in the fourth quarter of 2011, an increase of 77% compared to the non-GAAP sales and marketing expenses of RMB36.4 million (US$5.8 million) in the corresponding period in 2010. 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 RMB23.7 million (US$3.8 million) in the fourth quarter of 2011, an increase of 137% compared to product development expenses of RMB10.0 million (US$1.6 million) in the corresponding period in 2010. Non-GAAP product development expenses, which is herein defined as product development expenses excluding share-based compensation expenses, were RMB19.9 million (US$3.2 million) in the fourth quarter of 2011, an increase of 120% compared to the non-GAAP product development expenses of RMB9.0 million (US$1.4 million) in the corresponding period in 2010. This increase was primarily due to an increase in salaries and benefits for our product and development personnel primarily resulting from increased headcount.

General and administrative expenses were RMB32.4 million (US$5.1 million) in the fourth quarter of 2011, an increase of 216% compared to general and administrative expenses of RMB10.3 million (US$1.6 million) in the corresponding period in 2010. Non-GAAP general and administrative expenses, which is herein defined as general and administrative expenses excluding share-based compensation expenses,were RMB24.4 million (US$3.9 million) in the fourth quarter of 2011, an increase of 162% compared to the non-GAAP general and administrative expenses of RMB9.3 million (US$1.5 million) in the corresponding period in 2010. This increase was primarily due to an increase in personnel-related expenses, professional fees and tax charges.

Net loss was RMB49.6 million (US$7.9 million) in the fourth quarter of 2011, representing an increase of 32% from the corresponding period of 2010. Non-GAAP net loss, which is herein defined as net loss excluding share-based compensation expenses and change in fair value of warrant liability, was RMB34.1 million (US$5.4 million) in the fourth quarter of 2011, as compared to the non-GAAP net loss of RMB6.4 million(US$1.0 million) in the corresponding period in 2010. If we had continued using straight-line amortization for content costs as in the corresponding period in 2010, our non-GAAP net loss in the fourth quarter of 2011 would be RMB5.9 million (US$0.9 million), or a decrease of 7% relative to the corresponding period in 2010.

Non-GAAP EBITDA loss, which is herein defined 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 and other non-operating items, was RMB28.6 million (US$4.5 million) in the fourth quarter of 2011.

Full-Year 2011 Results

Net revenues were RMB897.6 million (US$142.6 million) in 2011, representing a 132% increase from 2010. The significant increase of net revenuesfor 2011 was mainly due to the strong performance of brand advertising revenues,which grew 128% from 2010 to RMB851.3 million (US$135.3 million) in 2011. The growth was primarily attributable to the increased use by brand advertisers of our advertising services as evidenced by the increased average spend per advertiser from RMB1.1 million to RMB2.0 million and by an increase in the number of advertisers from 423 to 505, representing a 82% and 19% increase from 2010 respectively.

Bandwidth costs as a component of cost of revenues were RMB324.7 million (US$51.6 million) in 2011, representing 36% of net revenues, compared to 50% in the corresponding period in 2010 due to strong operating leverage.

Content costs as a component of cost of revenues were RMB243.4 million (US$38.7 million)with our change in accounting estimate to accelerate amortization of content costs starting in fiscal year 2011. If the Company had continued using straight-line amortization for content costs as in 2010, the total purchased content costs would have been RMB172.5 million (US$27.4 million) representing 19% of net revenues in 2011 as compared to 21% in 2010.

Gross profit was RMB200.3 million (US$31.8 million) in 2011, an increase of 452% compared to gross profit of RMB36.3 million (US$5.8 million) in 2010. Non-GAAP gross profit was RMB204.2 million (US$32.4 million) in 2011, an increase of 449% compared to the non-GAAP gross profit of RMB37.2 million (US$5.9 million) in 2010. The significant increase of non-GAAP gross profit was mainly due to increased revenues from brand advertising services and strong operating leverage.

Operating expenses were RMB383.6 million (US$60.9 million) in 2011, an increase of 101% compared to operating expenses of RMB190.6 million (US$30.3 million) in 2010. Non-GAAP operating expenses were RMB340.0 million (US$54.0 million) in 2011, compared to the non-GAAP operating expenses of RMB179.4 million (US$28.5 million) in 2010. The increase was primarily due to increases in sales and marketing expenses, product development expenses and general and administrative expenses as a result of the substantial growth of our business during 2011. Detailed discussion of each component of operating expenses is as follows:

Sales and marketing expenses were RMB230.5 million (US$36.6 million) in 2011, an increase of 77% compared to sales and marketing expenses of RMB130.2 million (US$20.7 million) in 2010. Non-GAAP sales and marketing expenses were RMB216.3 million (US$34.4 million) in 2011, an increase of 74% compared to the non-GAAP sales and marketing expenses of RMB124.3 million (US$19.7 million) in 2010. 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 RMB72.6 million (US$11.5 million) in 2011, an increase of 132% compared to product development expenses of RMB31.3 million (US$5.0 million) in 2010. Non-GAAP product development expenses were RMB60.3 million (US$9.6 million) in 2011, an increase of 114% compared to the non-GAAP product development expenses of RMB28.2 million (US$4.5 million) in 2010. This increase was primarily due to an increase in salaries and benefits for product and development personnel resulting from increased headcount.

General and administrative expenses were RMB80.5 million (US$12.8 million) in 2011, an increase of 178% compared to general and administrative expenses of RMB29.0 million (US$4.6 million) in 2010. Non-GAAP general and administrative expenses were RMB63.4 million (US$10.1 million) in 2011, an increase of 136% compared to the non-GAAP general and administrative expenses of RMB26.9 million (US$4.3 million) in 2010.

Net loss was RMB172.1 million ($27.3 million), a 16% decrease from 2010. Non-GAAP net loss was RMB124.6 million (US$19.8 million) in 2011, or a decrease of 16% relative to the non-GAAP net loss in 2010. If we had continued using straight-line amortization for content costs as in the corresponding period in 2010, our non-GAAP net loss in 2011 would be RMB53.7 million (US$8.5 million), or a decrease of 64% relative to 2010.

Non-GAAP EBITDA loss was RMB90.1 million (US$14.3 million) in 2011, or a decrease of 9% relative to the non-GAAP EBITDA loss in 2010.

Business Outlook

For the first quarter of 2012, the Company expects year-on-year growth of 95% to 105% in net revenues. This forecast reflects the Company's current and preliminary view, which is subject to change.

Supplementary Information

The number of monthly unique visitors from homes and offices in December 2011 was approximately 263 million, an increase of 26% compared to the corresponding period in 2010 according to iResearch.

Total user time spent for the fourth quarter in 2011 was approximately 2.2 billion hours, an increase of 78% compared to the corresponding period in 2010 according to iResearch.

Youku and Tudou Holdings Limited (NASDAQ: TUDO) ("Tudou") today announced that they have signed a definitive agreement for Tudou to combine with Youku in a 100% stock for stock transaction that will result in Youku and Tudou shareholders and ADS holders owning approximately 71.5% and 28.5% of the combined entity, respectively, immediately upon closing of the transaction.  For more details, please see the joint press release issued by Youku and Tudou on March 12, 2012.

Conference Call Information

Youku's management will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on March 12, 2012 (8:00 p.m. Beijing/Hong Kong Time on March 12, 2012).

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: 1-718-354-1231

Mainland China Toll Free Dial In: 86-4006208038 / 86-8008190121

Hong Kong Dial In: 852-2475-0994

A replay of the call will be available by dialing 1-866-214-5335 (international 1-718-354-1232), and entering passcode 56671639#. The replay will be available through March 19, 2012.

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's corporate website at http://ir.youku.com.

About Youku

Youku Inc. is China's leading Internet television company. Our Internet television platform enables users to search, view and share high-quality video content quickly and easily across multiple devices. Youku, which stands for "what's best and what's cool" in Chinese, is the most recognized online video brand in China.  Youku's American depositary shares, each representing 18 of our Class A ordinary shares, are traded on 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's strategic and operational plans, contain forward-looking statements. Youku 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'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 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's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Youku uses the following measures defined as non-GAAP financial measures by the SEC in evaluating its business: non-GAAP gross profit, non-GAAP operating expenses, non-GAAP sales and marketing expense, 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 gross profit, non-GAAP operating expenses, non-GAAP sales and marketing expense, non-GAAP product development expenses, non-GAAP general and administrative expenses, and non-GAAP loss from operations as the respective nearest comparable GAAP financial measure to exclude share-based compensation expenses. We define non-GAAP net loss as net loss excluding share-based compensation expenses and change in fair value of warrant liability. We define non-GAAP EBITDA loss as net income or loss before income taxes, interest expenses, interest income, depreciation and amortization (excluding amortization of acquired content), further adjusted for share-based compensation 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 consolidated 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'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:

Investor Relations:

Ryan Cheung

Corporate Finance Director

Youku Inc.

Tel: (+8610) 5885-1881 x6090

Email: ryan.cheung@youku.com

    YOUKU  INC.
    CONSOLIDATED BALANCE SHEETS

              (Amounts in thousands, except for          December    December    December
                      number of shares)                       31,          31          31
                                                             2010        2011        2011
                                                             ----        ----        ----
                                                              RMB         RMB         US$
    ASSETS                                                        (Unaudited) (Unaudited)

    Current assets:
              Cash and cash equivalents               1,811,423   2,292,538     364,248
              Short-term investments                          -   1,400,858     222,574
              Accounts receivable, net                  216,245     421,474      66,966
              Intangible assets                          10,230      16,078       2,555
              Prepayments and other assets               25,187      16,832       2,674

    Total current assets                              2,063,085   4,147,780     659,017

    Non-current assets:
              Property and equipment, net                64,177      96,567      15,343
              Long-term investment                            -       1,707         271
              Intangible assets                          57,550     211,978      33,680
              Capitalized content production costs            -       7,782       1,236
              Prepayments and other assets                5,356     209,744      33,325

     Total non-current assets                           127,083     527,778      83,855
                                                        -------     -------      ------

    TOTAL ASSETS                                      2,190,168   4,675,558     742,872
                                                      =========   =========     =======

    LIABILITIES AND SHAREHOLDERS'
     EQUITY

    Current liabilities:
              Accounts payable                           35,641      60,070       9,544
              Advances from customers                     1,304       3,140         499
              Accrued expenses and other liabilities    201,100     390,607      62,061
              Current portion of long-term debt          22,180       9,182       1,459

    Total current liabilities                           260,225     462,999      73,563

    Non-current liabilities?
              Long-term debt                             18,455       7,382       1,173

    Total non-current liabilities                        18,455       7,382       1,173
                                                         ------       -----       -----

    Total liabilities                                   278,680     470,381      74,736

    Commitments and contingencies

    Shareholders' equity?
              Class A Ordinary Shares (US$0.00001 par
              value, 9,340,238,793                           82          93          15
              authorized, 1,235,761,996 and
              1,395,435,339  issued and
              outstanding as of December 31, 2010 and
              2011, respectively)
              Class B Ordinary Shares (US$0.00001 par
              value, 659,761,207                             49          49           8
              authorized, 659,761,207 and 659,561,893
              issued and outstanding
              as of December 31, 2010 and 2011,
              respectively)
              Additional paid-in capital              2,625,250   5,185,257     823,854
              Accumulated deficit                      -699,540    -871,644    -138,490
              Accumulated other comprehensive loss      -14,353    -108,578     -17,251

    Total shareholders' equity                        1,911,488   4,205,177     668,136
                                                      ---------   ---------     -------

     TOTAL LIABILITIES AND
      SHAREHOLDERS' EQUITY                            2,190,168   4,675,558     742,872
                                                      =========   =========     =======

    YOUKU INC.
      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                    For the Three Months Ended,
                                                    ---------------------------
    (Amounts in thousands,
     except for number of
     shares and                  December 31,  September 30,          December 31,   December 31,
           ADS and per share and
            per ADS data)
                                         2010           2011                  2011           2011
                                         ----           ----                  ----           ----
                                          RMB            RMB                   RMB            US$
                                  (Unaudited)    (Unaudited)           (Unaudited)    (Unaudited)

    Net revenues                      152,474        262,471               309,309         49,144

    Cost of revenues (Note
     1)                              (102,111)      (194,686)             (243,735)       (38,726)
                                     --------       --------              --------        -------

    Gross profit (loss)                50,363         67,785                65,574         10,418

    Operating expenses:
            Product development       (10,027)       (24,053)              (23,734)        (3,771)
            Sales and marketing       (38,711)       (74,205)              (66,869)       (10,624)
           General and
            administrative            (10,241)       (21,845)              (32,351)        (5,140)
                                      -------        -------               -------         ------
    Total operating
     expenses                         (58,979)      (120,103)             (122,954)       (19,535)
                                      -------       --------              --------        -------

    (Loss) profit from
     operations                        (8,616)       (52,318)              (57,380)        (9,117)

    Interest income                       102          8,677                10,770          1,711
    Interest expenses                  (2,477)        (1,542)               (1,327)          (211)
    Change in fair value of
     warrant liability                (26,736)             -                     -              -
    Other, net                              4         (2,291)               (1,677)          (266)
                                          ---         ------                ------           ----
    Total other income
     (expenses), net                  (29,107)         4,844                 7,766          1,234

    (Loss) profit before
     income taxes                     (37,723)       (47,474)              (49,614)        (7,883)
    Income taxes                            -              -                     -              -
                                          ---            ---                   ---            ---

    Net (loss) profit                 (37,723)       (47,474)              (49,614)        (7,883)
                                      =======        =======               =======         ======

    Net loss per share,
     basic and diluted                  (0.05)         (0.02)                (0.02)             *
    Net loss per ADS, basic
     and diluted                        (0.89)         (0.42)                (0.43)         (0.07)
    Shares used in
     computation, basic and
     diluted                      765,083,372  2,051,993,011         2,054,298,858  2,054,298,858
    ADS used in
     computation, basic and
     diluted                       42,504,632    113,999,611           114,127,714    114,127,714

                                               For the Twelve Months Ended,
                                               ----------------------------
    (Amounts in
     thousands,
     except for
     number of
     shares and            December 31,     December 31,     December 31,
           ADS and per
            share and
            per ADS
            data)
                                           2010                2011                2011
                                           ----                ----                ----
                                            RMB                 RMB                 US$
                                                        (Unaudited)         (Unaudited)

    Net
     revenues                           387,097             897,624             142,619

    Cost of
     revenues
     (Note 1)                          (350,830)           (697,337)           (110,796)
                                       --------            --------            --------

    Gross
     profit
     (loss)                              36,267             200,287              31,823

    Operating
     expenses:
            Product
             development                (31,287)            (72,573)            (11,531)
            Sales and
             marketing                 (130,238)           (230,475)            (36,619)
           General and
            administrative              (28,957)            (80,529)            (12,795)
    Total
     operating
     expenses                          (190,482)           (383,577)            (60,945)
                                       --------            --------             -------

    (Loss)
     profit
     from
     operations                        (154,215)           (183,290)            (29,122)

    Interest
     income                               1,170              23,693               3,764
    Interest
     expenses                            (7,440)             (6,825)             (1,084)
    Change in
     fair value
     of warrant
     liability                          (44,268)                  -                   -
    Other, net                               69              (5,682)               (903)
                                            ---              ------                ----
    Total other
     income
     (expenses),
     net                                (50,469)             11,186               1,777

    (Loss)
     profit
     before
     income
     taxes                     (204,684)        (172,104)         (27,345)
    Income
     taxes                                    -                   -                   -
                                            ---                 ---                 ---

    Net (loss)
     profit                            (204,684)           (172,104)            (27,345)
                                       ========            ========             =======

    Net loss
     per share,
     basic and
     diluted                              (0.44)              (0.09)              (0.01)
    Net loss
     per ADS,
     basic and
     diluted                              (7.90)              (1.55)              (0.25)
    Shares used
     in
     computation,
     basic and
     diluted                466,340,541    1,992,923,515    1,992,923,515
    ADS used in
     computation,
     basic and
     diluted                         25,907,808         110,717,973         110,717,973

    * represents per share amount which is less than (0.01)

    The accompanying notes are an integral part of the press release

    Note 1. Cost of
     Revenues                       For the Three Months Ended,
                                    ---------------------------
                           December    September           December    December
                                31,          30,                31,         31,
                               2010         2011               2011        2011
                               ----         ----               ----        ----
                                RMB          RMB                RMB         US$
    (Amounts in
     thousands)         (Unaudited)  (Unaudited)        (Unaudited) (Unaudited)
     Cost of revenues:
     Business tax and
      surcharges             15,231       25,420             32,162       5,110
     Bandwidth costs         51,685       92,388            109,718      17,432
     Depreciation of
      servers and other
      equipment               8,950        9,855             11,166       1,775
     Content costs           26,245       67,023             90,689      14,409
                             ------       ------                         ------
     Total Cost of
      Revenues              102,111      194,686            243,735      38,726
                            =======      =======            =======      ======

    Note 1. Cost of Revenues           For the Twelve Months Ended,
                                       ----------------------------
                                       December    December           December
                                            31,         31,                31,
                                           2010        2011               2011
                                           ----        ----               ----
                                            RMB         RMB                US$
    (Amounts in thousands)                      (Unaudited)        (Unaudited)
     Cost of revenues:
     Business tax and surcharges         38,472      90,215             14,334
     Bandwidth costs                    191,679     324,682             51,587
     Depreciation of servers and other
      equipment                          37,958      39,052              6,205
     Content costs                       82,721     243,388             38,670
     Total Cost of Revenues             350,830     697,337            110,796
                                        =======     =======            =======

    YOUKU INC.
     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                   For the Three Months Ended,
                                                                   ---------------------------
                    (Amounts in thousands)                       Dec 31,      Sep 30,      Dec 31,      Dec 31,
                                                                    2010         2011         2011         2011
                                                                    ----         ----         ----         ----
                                                                     RMB          RMB          RMB          US$
                                                             (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
    Cash flows from operating
     activities:
    Net loss                                                     (37,723)     (47,474)     (49,614)      (7,883)
    Adjustments to reconcile net loss to
     net cash used in operating
     activities:
              Depreciation                                        10,408       11,557       13,230        2,102
              Bad debt expense                                       330        1,066          (10)          (2)
               Amortization of intangible assets and self
               produced contents                                  12,595       43,111       61,552        9,780
              Accretion of long-term debt discounts                1,053          839          717          114
               Gain on disposal of  property and
               equipment                                              (4)           -          (11)          (2)
              Foreign exchange loss                                    -        1,971        2,009          319
              Share-based compensation                             4,615       19,295       15,547        2,470
              Change in fair value of warrant liability           26,736            -            -            -
               Change in operating assets and
               liabilities:
                      Accounts receivable                        (46,703)    (135,309)      (8,577)      (1,363)
                      Prepayments and other assets                   469       (6,911)        (806)        (128)
                      Capitalized content production costs         1,554       (5,384)      (4,055)        (644)
                      Accounts payable                                71            -            -            -
                      Advances from customers                       (219)       4,444       (2,028)        (322)
                      Accrued expenses and other liabilities      37,446      111,676       53,597        8,515

    Net cash provided by (used in)
     operating activities                                         10,628       (1,119)      81,551       12,956

    Cash flows from investing
     activities:
              Acquisition of property and equipment              (17,364)     (11,797)     (40,706)      (6,468)
              Deposit for acquisition of equity interest               -            -            -            -
               Proceeds from (purchase of) short-term
               investments                                             -     (168,131)         261           41
               Proceeds from disposal of property and
               equipment                                               4            -           16            3
              Acquisition of intangible assets                   (26,673)    (189,884)    (115,049)     (18,279)

    Net cash used in investing
     activities                                                  (44,033)    (369,812)    (155,478)     (24,703)

    Cash flows from financing
     activities:
              Exercise of employee stock options                      62        2,390        1,232          196
               Proceeds from issuance of Series F
               Preferred Shares                                        -            -            -            -
              Drawdown of long-term debt                               -            -            -            -
              Principal repayments on long-term debt              (7,677)      (5,594)      (4,741)        (753)
              Debt commitment fee received                             -            -            -            -
               Proceeds from follow-on offering & IPO
               activity, net of issuance costs                 1,435,329         (539)        (247)         (39)
               Payment of convertible redeemable
               preferred shares issuance costs                   (12,611)           -            -            -

    Net cash  provided by (used in)
     financing activities                                      1,415,103       (3,743)      (3,756)        (596)
    Effect of exchange rate changes on
     cash and cash equivalents                                   (10,829)     (44,041)     (17,626)      (2,800)
                                                                 -------      -------      -------       ------
    Net (decrease) increase in cash and
     cash equivalents                                          1,370,869     (418,715)     (95,309)     (15,143)
    Cash and cash equivalents at the
     beginning of the period                                     440,554    2,806,562    2,387,847      379,391
    Cash and cash equivalents at the end
     of the period                                             1,811,423    2,387,847    2,292,538      364,248
                                                               =========    =========    =========      =======

                                                         For the Twelve Months Ended,
                                                         ----------------------------
                                                              December     December    December
                    (Amounts in thousands)                                                       31, 31, 31,
                                                                  2010         2011         2011
                                                                  ----         ----         ----
                                                                   RMB          RMB          US$
                                                                        (Unaudited)  (Unaudited)
    Cash flows from operating
     activities:
    Net loss                                                  (204,684)    (172,104)     (27,345)
    Adjustments to reconcile net loss to
     net cash used in operating
     activities:
              Depreciation                                      42,691       45,670        7,256
              Bad debt expense                                     994        1,509          240
               Amortization of intangible assets and self
               produced contents                                44,530      166,576       26,466
              Accretion of long-term debt discounts              2,504        3,496          555
               Gain on disposal of  property and
               equipment                                            19          (18)          (3)
              Foreign exchange loss                                  -        5,624          894
              Share-based compensation                          11,990       47,494        7,546
              Change in fair value of warrant liability         44,268            -            -
               Change in operating assets and
               liabilities:
                      Accounts receivable                     (142,279)    (206,738)     (32,847)
                      Prepayments and other assets              (1,457)     (15,458)      (2,455)
                      Capitalized content production costs        (196)     (11,307)      (1,797)
                      Accounts payable                             (39)        (252)         (40)
                      Advances from customers                   (1,906)       1,836          292
                      Accrued expenses and other liabilities    97,541      197,542       31,386

    Net cash provided by (used in)
     operating activities                                     (106,024)      63,870       10,148

    Cash flows from investing
     activities:
              Acquisition of property and equipment            (45,987)     (84,855)     (13,482)
              Deposit for acquisition of equity interest        (1,707)           -            -
               Proceeds from (purchase of) short-term
               investments                                           -   (1,397,817)    (222,091)
               Proceeds from disposal of property and
               equipment                                             4           24            4
              Acquisition of intangible assets                 (89,150)    (490,767)     (77,975)

    Net cash used in investing
     activities                                               (136,840)  (1,973,415)    (313,544)

    Cash flows from financing
     activities:
              Exercise of employee stock options                   165        4,647          738
               Proceeds from issuance of Series F
               Preferred Shares                                334,985            -            -
              Drawdown of long-term debt                        33,875            -            -
              Principal repayments on long-term debt           (26,620)     (27,107)      (4,307)
              Debt commitment fee received                        (136)           -            -
               Proceeds from follow-on offering & IPO
               activity, net of issuance costs               1,434,763    2,512,969      399,271
               Payment of convertible redeemable
               preferred shares issuance costs                 (13,259)           -            -

    Net cash  provided by (used in)
     financing activities                                    1,763,773    2,490,509      395,702
    Effect of exchange rate changes on
     cash and cash equivalents                                 (11,094)     (99,849)     (15,864)
                                                               -------      -------      -------
    Net (decrease) increase in cash and
     cash equivalents                                        1,509,815      481,115       76,442
    Cash and cash equivalents at the
     beginning of the period                                   301,608    1,811,423      287,806
    Cash and cash equivalents at the end
     of the period                                           1,811,423    2,292,538      364,248
                                                             =========    =========      =======

    Reconciliations of Non-GAAP results of operations measures to the nearest comparable GAAP financial measures (*) (Amounts in thousands of Renminbi
     ("RMB") and U.S. dollars ("US$"),unaudited)

    1. Non-GAAP Gross Profit (Loss)                                                   For the Three Months Ended,                                              For the Twelve Months Ended,
                                                                                      ---------------------------                                              ----------------------------
                                                             December 31,        September 30,           December 31,          December 31,       December 31,      December 31,      December 31,
                                                                     2010                 2011                   2011                  2011               2010              2011              2011
                                                                     ----                 ----                   ----                  ----               ----              ----              ----

    Gross profit (loss)                                            50,363               67,785                 65,574                10,418             36,267           200,287            31,823
     Add back: share-based compensation                               368                1,459                  1,302                   207                918             3,894               619
                                                                      ---                -----                  -----                   ---                ---             -----               ---
    Non-GAAP gross profit (loss)                                   50,731               69,244                 66,876                10,625             37,185           204,181            32,442
                                                                   ======               ======                 ======                ======             ======           =======            ======

    2. Non-GAAP Operating Expenses                                                For the Three Months Ended,                                       For the Twelve Months Ended,
                                                                                  ---------------------------                                       ----------------------------
                                                             December 31,        September 30,           December 31,          December 31,       December 31,      December 31,      December 31,
                                                                     2010                 2011                   2011                  2011               2010              2011              2011
                                                                     ----                 ----                   ----                  ----               ----              ----              ----
                                                                      RMB                  RMB                    RMB                   US$                RMB               RMB               US$
    Operating expenses                                             58,979              120,103                122,954                19,535            190,482           383,577            60,945
     Deduct: share-based compensation                               4,247               17,836                 14,245                 2,263             11,072            43,600             6,927
                                                                    -----               ------                 ------                 -----             ------            ------             -----
    Non-GAAP operating expenses                                    54,732              102,267                108,709                17,272            179,410           339,977            54,018
                                                                   ======              =======                =======                ======            =======           =======            ======

    3. Non-GAAP Sales and Marketing
     Expenses                                                                     For the Three Months Ended,                                       For the Twelve Months Ended,
                                                                                  ---------------------------                                       ----------------------------
                                                             December 31,        September 30,           December 31,          December 31,       December 31,      December 31,      December 31,
                                                                     2010                 2011                   2011                  2011               2010              2011              2011
                                                                     ----                 ----                   ----                  ----               ----              ----              ----
                                                                      RMB                  RMB                    RMB                   US$                RMB               RMB               US$
    Sales and marketing expenses                                   38,711               74,205                 66,869                10,624            130,238           230,475            36,619
     Deduct: share-based compensation                               2,309                6,047                  2,440                   388              5,954            14,196             2,255
                                                                    -----                -----                  -----                   ---              -----            ------             -----
    Non-GAAP  sales and marketing
     expenses                                                      36,402               68,158                 64,429                10,236            124,284           216,279            34,364
                                                                   ======               ======                 ======                ======            =======           =======            ======

    4. Non-GAAP Product Development
     Expenses                                                                     For the Three Months Ended,                                       For the Twelve Months Ended,
                                                                                  ---------------------------                                       ----------------------------
                                                             December 31,        September 30,           December 31,          December 31,       December 31,      December 31,      December 31,
                                                                     2010                 2011                   2011                  2011               2010              2011              2011
                                                                     ----                 ----                   ----                  ----               ----              ----              ----
                                                                      RMB                  RMB                    RMB                   US$                RMB               RMB               US$
    Product development expenses                                   10,027               24,053                 23,734                 3,771             31,287            72,573            11,531
     Deduct: share-based compensation                               1,011                5,534                  3,872                   615              3,049            12,233             1,944
                                                                    -----                -----                  -----                   ---              -----            ------             -----
    Non-GAAP product development
     expenses                                                       9,016               18,519                 19,862                 3,156             28,238            60,340             9,587
                                                                    =====               ======                 ======                 =====             ======            ======             =====

    5. Non-GAAP General and
     Administrative Expenses                                                      For the Three Months Ended,                                       For the Twelve Months Ended,
                                                                                  ---------------------------                                       ----------------------------
                                                             December 31,        September 30,           December 31,          December 31,       December 31,      December 31,      December 31,
                                                                     2010                 2011                   2011                  2011               2010              2011              2011
                                                                     ----                 ----                   ----                  ----               ----              ----              ----
                                                                      RMB                  RMB                    RMB                   US$                RMB               RMB               US$
    General and administrative expenses                            10,241               21,845                 32,351                 5,140             28,957            80,529            12,795
     Deduct: share-based compensation                                 927                6,255                  7,933                 1,260              2,069            17,171             2,728
                                                                      ---                -----                  -----                 -----              -----            ------             -----
    Non-GAAP general and administrative
     expenses                                                       9,314               15,590                 24,418                 3,880             26,888            63,358            10,067
                                                                    =====               ======                 ======                 =====             ======            ======            ======

    6. Non-GAAP  (Loss) Profit from
     Operations                                                                   For the Three Months Ended,                                       For the Twelve Months Ended,
                                                                                  ---------------------------                                       ----------------------------
                                                             December 31,        September 30,           December 31,          December 31,       December 31,      December 31,      December 31,
                                                                     2010                 2011                   2011                  2011               2010              2011              2011
                                                                     ----                 ----                   ----                  ----               ----              ----              ----
                                                                      RMB                  RMB                    RMB                   US$                RMB               RMB               US$
    (Loss) profit from operations                                  (8,616)             (52,318)               (57,380)               (9,117)          (154,215)         (183,290)          (29,122)
     Add back: share-based compensation                             4,615               19,295                 15,547                 2,470             11,990            47,494             7,546
                                                                    -----               ------                 ------                 -----             ------            ------             -----
    Non-GAAP  (loss) profit from
     operations                                                    (4,001)             (33,023)               (41,833)               (6,647)          (142,225)         (135,796)          (21,576)
                                                                   ======              =======                =======                ======           ========          ========           =======

    7. Non-GAAP  Net (Loss) Profit                                                For the Three Months Ended,                                       For the Twelve Months Ended,
                                                                                  ---------------------------                                       ----------------------------
                                                             December 31,        September 30,           December 31,          December 31,       December 31,      December 31,      December 31,
                                                                     2010                 2011                   2011                  2011               2010              2011              2011
                                                                     ----                 ----                   ----                  ----               ----              ----              ----
                                                                      RMB                  RMB                    RMB                   US$                RMB               RMB               US$
     Net (loss) profit                                            (37,723)             (47,474)               (49,614)               (7,883)          (204,684)         (172,104)          (27,345)
     Add back: share-based compensation                             4,615               19,295                 15,547                 2,470             11,990            47,494             7,546
     Add back: change in fair value of
      warrant liability                                            26,736                    -                      -                     -             44,268                 -                 -
                                                                   ------                  ---                    ---                   ---             ------               ---               ---
     Non-GAAP net (loss) profit                                    (6,372)             (28,179)               (34,067)               (5,413)          (148,426)         (124,610)          (19,799)
                                                                   ======              =======                =======                ======           ========          ========           =======

    8.  Non-GAAP EBITDA (Loss) Profit                                             For the Three Months Ended,                                       For the Twelve Months Ended,
                                                                                  ---------------------------                                       ----------------------------
                                                             December 31,        September 30,           December 31,          December 31,       December 31,      December 31,      December 31,
                                                                     2010                 2011                   2011                  2011               2010              2011              2011
                                                                     ----                 ----                   ----                  ----               ----              ----              ----
                                                                      RMB                  RMB                    RMB                   US$                RMB               RMB               US$
     Net (loss) profit                                            (37,723)             (47,474)               (49,614)               (7,883)          (204,684)         (172,104)          (27,345)
     Add back:
     Depreciation and amortization
      (excluding amortization
           of acquired content)**                                  10,423               11,571                 13,244                 2,104             42,711            45,728             7,265
     Interest income                                                 (102)              (8,677)               (10,770)               (1,711)            (1,170)          (23,693)           (3,764)
     Interest expenses                                              2,477                1,542                  1,327                   211              7,440             6,825             1,084
     Income taxes                                                       -                    -                      -                     -                  -                 -                 -
                                                                      ---                  ---                    ---                   ---                ---               ---               ---
     EBITDA (Loss) Profit                                         (24,925)             (43,038)               (45,813)               (7,279)          (155,703)         (143,244)          (22,760)

     Adjustments:
     Share-based compensation                                       4,615               19,295                 15,547                 2,470             11,990            47,494             7,546
     Change in fair value of warrant
      liability                                                    26,736                    -                      -                     -             44,268                 -                 -
     Others, net                                                       (4)               2,291                  1,677                   266                (69)            5,682               903
                                                                      ---                -----                  -----                   ---                ---             -----               ---
    Non-GAAP EBITDA (Loss) Profit                                   6,422              (21,452)               (28,589)               (4,543)           (99,514)          (90,068)          (14,311)
                                                                    =====              =======                =======                ======            =======           =======           =======

    *  For more information on the Non-GAAP financial measures, please see the section captioned "About Non-GAAP Financial Measures" in this earnings release.
    **The amortization expense was related to advertising license acquired in April 2010. The amortization of acquired content was not treated as a Non-GAAP
     adjustment.

SOURCE  Youku Inc.

Youku Inc.

Web Site: http://ir.youku.com