Hmmm, I know you own BIDU for a while. I start to look into BIDU and the first question I have is on its giant cash balance. BIDU's cash makes up almost 70% of its total assets, and BIDU is still issuing debt. Also, it should makes sense for BIDU to repurchase its stocks, but it seems to never happen. What's your thought on it?
Excellent questions, GV. I'll do what I can to answer them.
My BIDU background: I was an investor in BIDU from March, '09 until 6 quarters ago. Then I switched BIDU into a trading stock because while I was an investor, I'd noticed it trades on a strong "Buy the Rumor, Sell the News" pattern.
I. Why Does Cash Make Up Such a High Percentage of BIDU's Assets?
I think it's because BIDU's still primarily a search engine company. As such, equipment and infrastructure costs are much lower, on a percentage basis, than other industries. Where XIN is obliged to own a bunch of huge cranes and dumptrucks and whatever other expensive equipment you need to put up a building, all BIDU needs are (mostly) a bunch of tech geeks to keep them running smoothly.
As a percentage of their assets, the cash for both BIDU and Google are roughly equivalent: 60% to 65%, somewhere in there.
II. Why No Share Repurchase?
1. BIDU actually needs a ton of a cash because its principal long term growth strategy is online industry diversification, so it's constantly buying and strongly promoting small online companies, using the Amazon "Get big first, Worry about Profitability Later" model.
A couple quick examples: BIDU bought and expanded Qiyi (Hulu type site), Qunar (travel site), Baijob (jobs), Wenku (books), Ting (I-tunes) and others.
Since the plan is to trade profitability for larger market share, these new ventures chew up a lot of cash.
BIDU's always described as the "Google of China," and that's true, but it really sees itself more like the "Online GE of China," in that they're starting with one highly profitable business, then adding business after business in other industries.
2. Because BIDU's got hundreds of analysts and because they've been so transparent from the beginning, the west trusts BIDU on the fraud question more than just about any other Chinese company (how many can you name w/ 20+ P/E's?).
Therefore, Share RePurchase as an antidote to fraud speculation hasn't really become necessary.