blainehodder Posted July 28, 2015 Share Posted July 28, 2015 It seems Baidu is being thrown out with the bathwater amidst the Chinese bubble burst, yet revenue is still ticking along at 38%/yr, return on capital is phenomenal, and the runway is long. Net income growth has stalled out, but I see that sorting itself out over time. The selloff on yesterday's earnings miss is finally bringing this to buyable levels. I am starting a position here at sub 165 levels. I expect the revenue growth to continue for many yrs, and the price to be justified even if the PE contracts substantially. Thoughts? Link to comment Share on other sites More sharing options...
wbr Posted July 28, 2015 Share Posted July 28, 2015 I invested in it at the end of 2012 for the same reasons (no position anymore though). You can just replace "mobile" in the 2012 thesis with "O2O"...if market cap goes to $50B I'm interested again. Im not underinvested so I wouldnt mind missing it and can afford to wait a little longer. It will probabaly take take some time for sentiment to turn. Link to comment Share on other sites More sharing options...
siddharth18 Posted August 24, 2015 Share Posted August 24, 2015 Anyone still following Baidu? It traded down to $100 today... Link to comment Share on other sites More sharing options...
blainehodder Posted August 24, 2015 Author Share Posted August 24, 2015 Yes. Loaded up today. Unreal selling near the open. The company is doing great. Expenses are rising with O2O investments which is spooking investors, but revenue is rocketing at 38%/yr. Earnings, while currently flatlining, will begin to follow revenue growth again. Search still has a long growth runway ahead (the company only has a 54B market cap), and they should be able to leverage their core products in O2O offerings. BIDU is being thrown out with the bathwater. This company is a premium company by any metric, and deserves to trade at a minimum 20+ multiple on forward earnings given the growth. Regardless, even if the multiple continues to compress, the company will grow their way out of it. Demographics are highly favorable, profitability for search is fantastic, and revenue growth is solid. Your chief concern as a potential investor should be looking at the O2O market and determining whether or not you feel comfortable with the company siphoning off the search profits into these growth verticals amidst fierce competition from Alibaba, Tencent and the startups. I am of the opinion that there will be no outright "winner" in O2O, and that Baidu should be a strong player in a competitive market. Li is a smarter man than I am, so I am at least going to give it a year and see what kind of incremental traction they get. They can always stop spending on O2O if it doesnt work out. Search will still there spitting off cash. Of couse the China selloff makes ithe price of the stock vulnerable in the short term, but the company is doing fantastic. Link to comment Share on other sites More sharing options...
rpadebet Posted August 24, 2015 Share Posted August 24, 2015 Yes. Loaded up today. Unreal selling near the open. The company is doing great. Expenses are rising with O2O investments which is spooking investors, but revenue is rocketing at 38%/yr. Earnings, while currently flatlining, will begin to follow revenue growth again. Search still has a long growth runway ahead (the company only has a 54B market cap), and they should be able to leverage their core products in O2O offerings. BIDU is being thrown out with the bathwater. This company is a premium company by any metric, and deserves to trade at a minimum 20+ multiple on forward earnings given the growth. Regardless, even if the multiple continues to compress, the company will grow their way out of it. Demographics are highly favorable, profitability for search is fantastic, and revenue growth is solid. Your chief concern as a potential investor should be looking at the O2O market and determining whether or not you feel comfortable with the company siphoning off the search profits into these growth verticals amidst fierce competition from Alibaba, Tencent and the startups. I am of the opinion that there will be no outright "winner" in O2O, and that Baidu should be a strong player in a competitive market. Li is a smarter man than I am, so I am at least going to give it a year and see what kind of incremental traction they get. They can always stop spending on O2O if it doesnt work out. Search will still there spitting off cash. Of couse the China selloff makes ithe price of the stock vulnerable in the short term, but the company is doing fantastic. Looks like it is selling at 20x fwd earnings now...but if fwd earnings are depressed by O2O investments then this could be a steal. 20x for a 30% grower over next few years still seems good enough. What are your estimates on pretax operating margins with O2O in steady state. Without O2O it looks like they can do 50%. Link to comment Share on other sites More sharing options...
blainehodder Posted August 24, 2015 Author Share Posted August 24, 2015 Looks like it is selling at 20x fwd earnings now...but if fwd earnings are depressed by O2O investments then this could be a steal. 20x for a 30% grower over next few years still seems good enough. What are your estimates on pretax operating margins with O2O in steady state. Without O2O it looks like they can do 50%. It is extremely difficult to forecast at this early stage, as it is hard to tell how much of the business will come from O2O initiatives like ticketing, group sales, e-commerce, Baidu Nuomi, Take-out delivery, online travel etc. vs regular search ads. I'm hoping this gets broken out in the future, but I would expect operating margin in search to be around 40-50% and closer to 20% normalized for the O2O businesses. O2O is almost a meaningless % of Baidu's revenue at this point, and the margins are obviously dragging on business as a whole as they ramp marketing up. Baidu Nuomi is growing at 200%/yr and Takeout delivery is growing at 100%/quarter. Not sure you can really forecast the endgame meaningfully when we have no idea how big these things will get or which particular businesses will become meaningful. Continued revenue traction will likely lead to greater spending, so it is unlikely you will see a normalized operating margin for the next 3-5 years. The better O2O does, the worse the consolidated operating margin will be, and we are yet to see how well O2O does, so it could toggle either way depending on the success or failure of O2O. Li has made it clear that earnings are will continue to be depressed by O2O spend. Link to comment Share on other sites More sharing options...
rpadebet Posted August 24, 2015 Share Posted August 24, 2015 I am perfectly fine with that depressed margin thing for few years or forever like in AMZN. I just want to know they are reinvesting cashflows in high ROI investments and the more they reinvest the more i like. Thanks for the 20% margin number, it gives me a range to shoot for. Did you get this from competitors or did BIDU disclose it? The margin compression doesn't mean much. The Search is at least 5x sales given the normalized margins there and the O2O is probably like 2x sales, this is assuming no more growth. With growth the multiples should be higher. At 30% growth, they should be far far higher. It looks like we can get this for 5X next year sales, so not bad at all. At $100, it would be great, but i missed that this morning. Link to comment Share on other sites More sharing options...
blainehodder Posted August 24, 2015 Author Share Posted August 24, 2015 I am perfectly fine with that depressed margin thing for few years or forever like in AMZN. I just want to know they are reinvesting cashflows in high ROI investments and the more they reinvest the more i like. Thanks for the 20% margin number, it gives me a range to shoot for. Did you get this from competitors or did BIDU disclose it? The margin compression doesn't mean much. The Search is at least 5x sales given the normalized margins there and the O2O is probably like 2x sales, this is assuming no more growth. With growth the multiples should be higher. At 30% growth, they should be far far higher. It looks like we can get this for 5X next year sales, so not bad at all. At $100, it would be great, but i missed that this morning. I am looking at competitors like BABA but it really is a crap shoot. The company has not disclosed what they think margins will be normalized (much like Amazon) as I would bet they are clueless as I am. Many of these businesses have no comps, or no comps with businesses using Chinese labour. Some businesses like travel and ticketing are obviously going to be very high margin, while Baidu Take-out will not be as pretty. It takes some faith in the CEO to get comfortable that they arent flushing money down the drain. For some light on the O2O tradction, you should read the recent conference call here: http://seekingalpha.com/article/3362235-baidus-bidu-ceo-robin-li-on-q2-2015-results-earnings-call-transcript I got some of the extremely low prices with IB this morning but my average price is about 150 as I bought some when I started this thread. Given the growth, I like to think I the price now is a great deal. I dont think it is possible to find a company with this level of growth around a core business doing 50% operating margins in North America. Unless O2O is a complete failure, I like the odds for the stock. Link to comment Share on other sites More sharing options...
rpadebet Posted August 24, 2015 Share Posted August 24, 2015 Thanks will go through. What do you think about the share repurchase of 1billion. If they have so much opportunity, why waste cash on this? Link to comment Share on other sites More sharing options...
blainehodder Posted August 24, 2015 Author Share Posted August 24, 2015 I think the repurchase is largely a symbolic show that they think the stock is cheap, and I wouldn't be shocked if they failed to execute on the whole thing. Link to comment Share on other sites More sharing options...
gjangal Posted August 25, 2015 Share Posted August 25, 2015 Online advertising market in China is growing ~25%. Currently at ~28B , baidu has a 33% share. Revs this year are projected to be around 10b Assuming revs grow at 20% for the next 3 years and slapping a normalized 20% net margin ( conservative imo), a 22-23 multiple on the stock would give you around 85b market cap plus cash generated during those 3 years. Even if the reinvestment in o2o doesn't materialize , the core search franchise itself is so strong, that alone could support the valuation unless any other player starts to take online advertising market share away from them. Low downside risks at this price in my opinion Link to comment Share on other sites More sharing options...
rpadebet Posted August 25, 2015 Share Posted August 25, 2015 Mostly agree with this. Did a little bit of work last night, seems like a bargain. I think the risk here is their Core business losing steam +O2O becoming a money pit. But I think at this price and given Google's search business dynamics, if BIDU has somewhat similar moat in china, this would be hard to lose. Link to comment Share on other sites More sharing options...
blainehodder Posted August 25, 2015 Author Share Posted August 25, 2015 Online advertising market in China is growing ~25%. Currently at ~28B , baidu has a 33% share. Revs this year are projected to be around 10b Assuming revs grow at 20% for the next 3 years and slapping a normalized 20% net margin ( conservative imo), a 22-23 multiple on the stock would give you around 85b market cap plus cash generated during those 3 years. Even if the reinvestment in o2o doesn't materialize , the core search franchise itself is so strong, that alone could support the valuation unless any other player starts to take online advertising market share away from them. Low downside risks at this price in my opinion Also agree as I think these are pretty conservative assumptions for revenue growth, though it wouldnt shock me for the multiple to compress lower than 20. Link to comment Share on other sites More sharing options...
rpadebet Posted August 25, 2015 Share Posted August 25, 2015 I don't care too much about the multiple.. My mantra is "grow baby grow. reinvest at high ROI's. Do it for a long time" I will buy if multiple compresses....so here is to hoping it does compress by a lot! Link to comment Share on other sites More sharing options...
blainehodder Posted December 2, 2015 Author Share Posted December 2, 2015 I don't care too much about the multiple.. My mantra is "grow baby grow. reinvest at high ROI's. Do it for a long time" I will buy if multiple compresses....so here is to hoping it does compress by a lot! Im selling my whole position today. I like the company but I just don't think this is a great bargain anymore. It was 130 3 months ago. I prefer to own GOOG or QIHU vs BIDU at todays price. Quite the roundtirip on BIDU. I seemed to have lucked out and bought near the bottom and sold near top. I think if this keeps dropping it will be time to lather rinse repeat. I have a small position now, but would make it a large position at the 130 level. Link to comment Share on other sites More sharing options...
rpadebet Posted December 2, 2015 Share Posted December 2, 2015 Yes it's run up a lot since I bought. I am sticking to it though, until I find something similarly ridiculously priced. The thing with these growthy names is, it's difficult to time when to sell. Sometimes you just got to let it rip. I sold AMZN partially after a 60% run up in few months, but it has run 60% more since:) Link to comment Share on other sites More sharing options...
rpadebet Posted December 2, 2015 Share Posted December 2, 2015 Yes it's run up a lot since I bought. I am sticking to it though, until I find something similarly ridiculously priced. The thing with these growthy names is, it's difficult to time when to sell. Sometimes you just got to let it rip. I sold AMZN partially after a 60% run up in few months, but it has run 60% more since:) Anyway my position in this is quite small relative to other names,( but bigger part of my Roth account) so nothing I would lose sleep over if it got cut in half now. Link to comment Share on other sites More sharing options...
blainehodder Posted December 2, 2015 Author Share Posted December 2, 2015 Yes it's run up a lot since I bought. I am sticking to it though, until I find something similarly ridiculously priced. The thing with these growthy names is, it's difficult to time when to sell. Sometimes you just got to let it rip. I sold AMZN partially after a 60% run up in few months, but it has run 60% more since:) Agreed. Good luck! I think it will prob continue higher for yrs. Link to comment Share on other sites More sharing options...
gjangal Posted December 2, 2015 Share Posted December 2, 2015 it's a ~12% position for me now. I might keep holding this one until I find something else to replace . Tough to find many options with 20% long term sales growth with operating leverage Link to comment Share on other sites More sharing options...
SwimmingNaked Posted December 3, 2015 Share Posted December 3, 2015 Bought this during the meltdown as well, because of the beautiful economics of the search business and the long runway for growth, haven't done much work on their newer investments though. Not tempted to sell yet, earnings are still depressed and this is a long term compounder that you can hold on to the end of the decade as long as valuation doesn't get silly. It's not as much of a no brainer as it was couple of months ago (kicking myself for not buying more), so I might have to roll up the sleeves and try to figure out the potential (or lack thereof) of these O2O investments (if someone could share their opinion on this, it would be very helpful). I remember reading in an Economist article couple of months ago that Chinese are more likely to use these kind of services than North Americans so while the concept doesn't resonate here (and it sounded like a foolish investment to me at first, also didn't help that O2O sounds like another BS business acronym), it could be a big/viable market in China and one that Baidu needs to invest in to support existing business. Link to comment Share on other sites More sharing options...
rpadebet Posted December 3, 2015 Share Posted December 3, 2015 O2O in my opinion has a lot of potential in most of the urban densely populated areas of the world. It will be big, but who knows who captures that market. It could be like the internet, potential could be reached, but winners can't be easily identified at this stage.Search companies have a good foot in the door. Ecommerce retailers like BABA also have a good chance. Some social network or messenger could also easily capture this.Or maybe you will have a pure play soon. Who knows? We got the optionality for free at the prices we bought, so lets play :) Link to comment Share on other sites More sharing options...
fareastwarriors Posted January 24, 2016 Share Posted January 24, 2016 Baidu Enters the Global Race for Driverless Car Domination http://www.bloomberg.com/news/articles/2016-01-24/baidu-enters-the-global-race-to-dominate-era-of-driverless-cars Link to comment Share on other sites More sharing options...
Guest Grey512 Posted February 9, 2016 Share Posted February 9, 2016 I made decent money in BIDU last year. Now it's back, approaching a $140 handle. Anyone getting interested here (again)? Link to comment Share on other sites More sharing options...
gjangal Posted February 13, 2016 Share Posted February 13, 2016 I am waiting for the results to add more. I can see this at 260 levels in 3 years which is a pretty decent return. Yuan depreciation is a risk though. I have assumed 6.7 usdcny and 20% revenue growth for the next 3 years. normalized net margins of 22% Link to comment Share on other sites More sharing options...
gjangal Posted February 13, 2016 Share Posted February 13, 2016 in hindsight I should have sold at 200s, but with companies like these it pays to hold for years because P/E ratios never behave as expected. Link to comment Share on other sites More sharing options...
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