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Youku Jumps on Baidu Stake Rumors

Acquisition rumors involving Chinese Internet stocks never seem to die.
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Youku (YOKU) jumped nearly 7% on Wednesday after rumors surfaced that Baidu (BIDU) was close to acquiring a stake in the Chinese online streaming company.

The rumors sent the stock up above $22 for the first time since February.

Baidu already has its own online video service called iQiyi. There have been rumors that Baidu was looking to list the shares of iQiyi itself. 

Recently, iQiyi expanded by buying another competitive online video service called PPS.

Another reason to treat this rumor with some suspicion is that Baidu also recently agreed to buy 91 Wireless for more than $1 billion. In other words, Baidu already has a lot on its plate dealing with these other deals before throwing the notion of buying a stake in Youku in the mix.

But think about what's driving Baidu's flurry of activity: a fear that it's slipping behind. With the rise of Qihoo 360 (QIHU) and the pending IPO of Alibaba there's a sense that Baidu has slipped behind in the Chinese Internet landscape.

Youku looks like it's finally ready to show some results after the merger with Tudou last year and being plagued by integration costs and sales integration issues.

Youku also boasted recently that its daily mobile views had reached 200 million in June, which was up from 170 million in May and 100 million in January. It also pointed to iResearch data that shows that it now has 14 million daily unique visitors, twice as many as iQiyi, and PPS (both around 7 million each).

While the rest of the Chinese Internet stocks have been hot for several weeks now, Youku has not participated as much until yesterday.

While Baidu may not be the one to take a stake in Youku, these rumors will certainly get other potential buyers or investors in a stake interested in a hurry. With Youku now clearing levels it hasn't seen since February, the next key levels to watch in the stock with be $24 and $27.

Acquisition rumors involving Chinese Internet stocks never seem to die. Sohu (SOHU) was rumored to be selling its Sogou search service back in June when the stock was in the low $50s. The deal hasn't yet closed, but shares are still in the $60s after almost reaching $70 before earnings. 

Expect Youku shares to continue to rise with more rumors involving potentially other players over the coming weeks.

At the time of publication, the author was long YOKU.