BIDU - Baidu Inc

[gaia10]

I wrote an update on Baidu. Would love to hear your comments.

 

https://snowballvalue.wordpress.com/2017/09/27/update-on-baidu/

 

 

PS. Thank you Foreign Tuffett for pointing out the Ctrip share count change and the currency risk. I have adjusted my valuation and taken note of the currency risk.

 

Why sell if you think:  "Going forward, Baidu is likely going to compound its search business near the industry growth rate of 20%-30% year over year while unlocking value for its other businesses and inventing new technology." 

 

Should the search business be worth the same multiple as Google's search business?  Consumption (driver of ad spend) in China is rising much faster than everywhere else in the world and internet penetration is still only ~50%.

 

The reason I am selling is because I see other interesting opportunities within the technology industry in China that can achieve a higher IRR. While Baidu's search revenue can compound near 20% yoy, there are other firms trading near Baidu's multiples with higher upside and greater moat.

 

Baidu could theoretically trade at a higher valuation than Google if growth is the only factor in consideration. However, in terms of quality, Baidu does not have the moat nor the competitive advantage that Google enjoys. For example, Google has 7 products with more than 1 billion MAU whereas Baidu only has its popular search engine with more than 500 mil MAU. Balancing the quality and growth aspect of Baidu, in my view, Baidu should trade within range of Google (trading quality for growth).

 

Which Chinese tech companies do you like best out of curiosity? 

 

I agree Google is a higher quality business, but having your market growing 20%/yr is a nice tailwind...

 

And Google itself may be undervalued.  On an absolute basis even at the current price I could see a 20%+ IRR on BIDU for a while.

 

In the process of studying Baidu and the advertising industry in China, I found Tencent to be the most interesting advertising play/ technology play in China. Although it might look like Tencent is trading at 50xPE, if you stripe out the stakes it has in other companies and consider its untapped advertising "real estate", it is trading at a reasonable price. I will write it up on my blog soon, but it will take some time as it has many moving parts.

 

I agree that Baidu is very interesting and would love to take it look at it once it becomes more attractive on a valuation basis. However, right now, I think some of the growth is being factored in and I just don't think 20%yoy growth is that attractive (in my opinion) if you consider the risks with mobile search competition (Baidu has lower market share in mobile than desktop), potential future cash burn, reliance on one single product etc. With the current valuation, I don't think I am provided with the same downside protection as last year.

 

 

[Liberty]

Interview with the COO of Baidu. He's a sharp guy.

 

https://overcast.fm/+Jb6CYenjU

[pau_]

Baidu is going to list iQiyi (its video biz) in the US, retaining a majority share and selling up to $1.5 billion.

 

https://www.sec.gov/Archives/edgar/data/1722608/000119312518060890/d487167df1.htm

 

 

[Jurgis]

This has gone to hell in handbasket. Losses - mostly because of iQiyi content acquisition consolidation? Zero'ish revenue growth. Presumably margin pressure on ads. Does this have a future or it's dead Jim?

 

[Aberhound]

This has gone to hell in handbasket. Losses - mostly because of iQiyi content acquisition consolidation? Zero'ish revenue growth. Presumably margin pressure on ads. Does this have a future or it's dead Jim?

 

Down to 5 year lows due to Trump. Top Chinese search and bet for a Netflix like sub and contender in self driving AI perhaps beat in China. So dominant in 2 key fields with US competitors locked out due to trade war. Good bet on AI which will be a megatrend likely to drive excess profits in many industries where most try to compete with people. And Martin Armstrong and many others think Asia will be the new financial center of the world with China's silk road likely to again generate 60% of the world GDP. This looks like a classic rip Van Winkle stock to buy and forget for 10+ years and spend the interim at the beach instead of staring at your computer looking for stocks.

[heth247]

This has gone to hell in handbasket. Losses - mostly because of iQiyi content acquisition consolidation? Zero'ish revenue growth. Presumably margin pressure on ads. Does this have a future or it's dead Jim?

 

Down to 5 year lows due to Trump. Top Chinese search and bet for a Netflix like sub and contender in self driving AI perhaps beat in China. So dominant in 2 key fields with US competitors locked out due to trade war. Good bet on AI which will be a megatrend likely to drive excess profits in many industries where most try to compete with people. And Martin Armstrong and many others think Asia will be the new financial center of the world with China's silk road likely to again generate 60% of the world GDP. This looks like a classic rip Van Winkle stock to buy and forget for 10+ years and spend the interim at the beach instead of staring at your computer looking for stocks.

 

What are your thoughts on the headwind in short term:

1. IQIYI (the "Netflix") is still and will likely keep to be a loss-maker over the next couple of years.

2. More Ad inventory on the market (pressure on margins), and small business are cutting back spending due to the deteriorating economy and trade war.

3. long time key VP in search has left the company.

 

[cameronfen]

This has gone to hell in handbasket. Losses - mostly because of iQiyi content acquisition consolidation? Zero'ish revenue growth. Presumably margin pressure on ads. Does this have a future or it's dead Jim?

 

Down to 5 year lows due to Trump. Top Chinese search and bet for a Netflix like sub and contender in self driving AI perhaps beat in China. So dominant in 2 key fields with US competitors locked out due to trade war. Good bet on AI which will be a megatrend likely to drive excess profits in many industries where most try to compete with people. And Martin Armstrong and many others think Asia will be the new financial center of the world with China's silk road likely to again generate 60% of the world GDP. This looks like a classic rip Van Winkle stock to buy and forget for 10+ years and spend the interim at the beach instead of staring at your computer looking for stocks.

 

What are your thoughts on the headwind in short term:

1. IQIYI (the "Netflix") is still and will likely keep to be a loss-maker over the next couple of years.

2. More Ad inventory on the market (pressure on margins), and small business are cutting back spending due to the deteriorating economy and trade war.

3. long time key VP in search has left the company.

 

Maybe my ignorance is showing here, but If the biggest negative news is IQIYI, why not just buy that?  It looks cheap with a quick look. 

[mwtorock]

This has gone to hell in handbasket. Losses - mostly because of iQiyi content acquisition consolidation? Zero'ish revenue growth. Presumably margin pressure on ads. Does this have a future or it's dead Jim?

 

Down to 5 year lows due to Trump. Top Chinese search and bet for a Netflix like sub and contender in self driving AI perhaps beat in China. So dominant in 2 key fields with US competitors locked out due to trade war. Good bet on AI which will be a megatrend likely to drive excess profits in many industries where most try to compete with people. And Martin Armstrong and many others think Asia will be the new financial center of the world with China's silk road likely to again generate 60% of the world GDP. This looks like a classic rip Van Winkle stock to buy and forget for 10+ years and spend the interim at the beach instead of staring at your computer looking for stocks.

 

What are your thoughts on the headwind in short term:

1. IQIYI (the "Netflix") is still and will likely keep to be a loss-maker over the next couple of years.

2. More Ad inventory on the market (pressure on margins), and small business are cutting back spending due to the deteriorating economy and trade war.

3. long time key VP in search has left the company.

 

Maybe my ignorance is showing here, but If the biggest negative news is IQIYI, why not just buy that?  It looks cheap with a quick look.

 

I like both actually. If you want to get Chinese Netflix without exposure in search, AI, autonomous driving, etc, just buy IQIYI. If you want the other pieces, buying BIDU is better. Although BIDU consoliates IQIYI, the capital investment is no long solely on the shoulder of BIDU. That is the beauty of spin off I guess. IQIYI has access to capital markets and have raised two rounds of CBs already at higher prices than today's. Both are worth looking into, but I am leaning towards BIDU.

[BPCAP]

Is BIDU cheap enough yet?

[no_free_lunch]

I don't like it. I don't understand how they hit the wall with Rev and earnings like this.  If we compare to Google they never seen to stall out like this. I just don't know how to analyze them.

 

You could do well but I'm staying away

[Foreign Tuffett]

I don't like it. I don't understand how they hit the wall with Rev and earnings like this.  If we compare to Google they never seen to stall out like this. I just don't know how to analyze them.

 

You could do well but I'm staying away

 

I think people need to stop thinking about Baidu as "the Chinese Google." While it's not wrong per se, I think it ignores the many, many differences between the two companies.

 

1) People generally like Google's search results, but I've have seen nothing but disdain for Baidu search from sophisticated internet users who have experience with other search engines. I posted a related anecdote earlier in this thread. Here's another one:

 

https://www.quora.com/Why-do-people-hate-Baidu-so-much

 

2) Baidu competes more directly with Tencent and Alibaba's "walled gardens" than Google, at least up to this point, has with Facebook and Amazon's. As a % of search revenue Baidu appears to spends much more than Google to acquire users. 

[nspo]

Hey, any updates here? Pretty interesting VIC update in November.

 

https://www.valueinvestorsclub.com/idea/BAIDU_INC/0161395600

 

Could it be a buying opportunity on Corona news?

[Arski]

Hey, any updates here? Pretty interesting VIC update in November.

 

https://www.valueinvestorsclub.com/idea/BAIDU_INC/0161395600

 

Could it be a buying opportunity on Corona news?

The write-up is very interesting and it could be a good opportunity, only I think there's too much uncertainty about how will do as search engine in China, how much money they will make, if they will establish or grow their market share and still it's China.

 

The value he thinks it worth is somewhat overstated; I don't think the search engine is worth $222, but still if you value it at $80 than the stock should be worth around $190, because the cash and investments looks like valued properly - I didn't check how the market value of these investments changed during the pandemic.

EV/FCF of 4.2 stays compelling.

Thoughts?