China top online video sites in IPO race: sources

TIANJIN, China Tue Sep 14, 2010 3:30am EDT

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TIANJIN, China (Reuters) - Youku and Tudou, China's two leading Internet video sharing sites, are racing each other to be the first to make an offshore IPO, seeking to tap strong interest from overseas investors in the hot sector, two sources familiar with the situation said.

Both companies have hired investment banks, and Tudou could launch its initial public offerings as early as by the year-end, one source familiar with the deal, said on Tuesday.

The source spoke on condition of anonymity as the news has not yet been made public.

Another source knowledgeable about the deals, but not working on either, said the IPOs were more likely to take place in or after the first quarter of 2011.

Tudou Chief Executive Gary Wang and Youku Chief Executive Victor Koo, both declined to comment on whether their companies were actively seeking IPOs.

The executives were speaking to Reuters on the sidelines of the World Economic Forum in the northern Chinese city of Tianjin.

Youku, which operates a video-sharing service similar to Google's YouTube, competes with Tudou in China's nascent online video market, which Wang estimated was worth around 1 billion yuan ($148 million) last year.

Neither Youku or Tudou are believed to be making a profit at the moment, though both could turn profitable in the near future, analysts said.

"This will depend on market conditions, in any case, the company is growing nicely," Tudou's Wang said. He expects China's online video sharing market to double or even triple next year, based on advertising revenue.

Tudou, which means potato in Mandarin and alludes to the image of an Internet couch potato, allows Internet users to share video files over the Web.

The company would focus on expanding content and its mobile video business after the latest round of fundraising, Wang said.

Last month, Tudou received a $35 million investment from Singapore state investment company Temasek Holdings. The $35 million investment was part of a $50 million fundraising by the Chinese company.

Koo of Youku said his company was out of its phase of heavy cash use with no major revenue, but declined to comment on profitability. "The money-burning phase is now behind us," he said.

Earlier this year, Youku told Reuters it expects to record a profit within three years, after which it may list in New York or Hong Kong.

(Editing by Jacqueline Wong and Anshuman Daga)

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