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Baidu, Inc. Message Board

  • cfuchs62 cfuchs62 Oct 31, 2011 10:11 PM Flag

    Why Baidu Could Be A Better Bet Than

    As an economy, China remains one of the global growth leaders. However, taking a look at the performance of its equity markets, one would hardly think that its economy is growing at 4 to 5 times the rate of the US. China’s stock markets have not been reflecting this underlying growth trend trailing US equities. Any hint of a slowdown, currency adjustment, real estate rumor or talks of China’s big customers in the US, Europe or Asia slowing imports, and China’s stocks take a big hit.

    Here, the old investment adage aptly fits in: if you have the nicest house in a crappy neighborhood, your home’s valuation will still reflect the surrounding environment, not just the fundamentals of your house. Meaning, the best stock in an embattled market may still be challenging.

    Interest rates, inflation fears, bank capital requirements, the health of economies of client nations, supply chain disruptions and concerns about the cost and availability of raw materials have all play their part into swift and steep movements, both up and down, in stock markets.

    On September 30, US-listed Chinese companies were clobbered after a securities regulator told Reuters that the Justice Department was investigating accounting irregularities at Chinese companies listed on US exchanges.

    Among the casualties was Baidu, Inc. (BIDU), one of our longest held stocks.

    Although this was an isolated incident, the past 12 months have been challenging for Chinese equities which far trail their sector counterparts in the US. Year-to-date, Chinese equity markets are behind the S&P 500 or the Global Dow by a material difference.

    Our investment in BIDU is profitable. One reason is that it has changed in position size and even seen a brief exit in late September this year. One of the beauties of liquid equities is the ability to move in and out and change risk profile by position size. The stock moves and moves quickly. Its beta, compared to the S&P 500, is over 1.5 but, then, remember that geopolitical events, currency moves and sentiment towards China, its economy and its pending economic soft or hard “landing” all come into play.

    A clear overview of the firm is provided curtsey of a NY Times article published in July.

    With an 84 percent market share, according to iResearch, Baidu can see exactly what most of China’s 450 million Internet users look for online, be it the latest political scandal, pop tune or movie schedule. And it is a formidable opponent for other companies, as Google can testify after scaling back its operations in China last year.

    But despite its redoubtable position, Baidu finds itself faced with a thorny challenge — keeping both the technocrats in Beijing and the financial analysts on Wall Street happy at the same time.

    Another article in Times presents some interesting insights and data.

    “Whether private or state-backed, domestic or foreign, competitors can’t tell us what the users can,” said Jennifer Li, the chief financial officer of Baidu. “We handle more daily queries in China than any other search engine does in any single national market. That much data on the intention of users yields real insight into their needs and how to satisfy them.”

    Acquisitions are another important part of the company’s strategy. Last month, Baidu announced it would invest $306 million for a majority stake in, China’s leading travel search engine. The announcement came a month after Tencent, its rival and the largest Internet company in China, said it would buy a 16 percent stake in the online travel site

    In social networking — where Chinese people spend 6 percent of their time online, according to ComScore — Baidu has failed to enjoy the success of Facebook clones like Renren and Kaixin001. That is a concern for the company if Chinese Web users become more like those in the United States, where about a quarter of Internet browsing time is spent on social networks.

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    • Chinese people spend 6 percent of their time online, according to ComScore"..........


      Neat stuff. I especially agree with the paragraph on acquisitions being a big part of future earnings growth, like Qunar (travel site) and Qiyi (streaming video site) that Bidu recently purchased. Here's why I LOVE acquisitions to add to future earnings growth:

      1. Bidu's got kickass money to buy or start from scratch any sites in any industry they want -- approx $1.8 billion in cash/equivalents; plus, incoming earnings of over another $1 billion per yr.

      2. Bidu is about to have 1.5 billion Chinese people asking it which sites they should visit in order to do or buy X, Y, and Z.


      That "Bidu Trick," should give them a competitive edge in every online industry they care to try.

    • I like it. ONly have to get the EU to play nice. That whole "make one currency for all those Euro countries" - doomed from the start. Greece an Italy treasury interest rates were ridiculous - 19% planet were they living on????

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