The Motley Fool's Bull Vs. Bear Case for Baidu

25,002 views
24,167 views

Published on

For the full article, go here: http://mot.ly/Xb284i. We take a detailed look at the arguments for and against Baidu.

Published in: Economy & Finance
1 Comment
10 Likes
Statistics
Notes
  • Evden Eve Taşımacılık olayı denince akla gelen ilk firmalardan birisi de Dumankaya nakliyattır.
    Ev Ofis Taşımacılığı konusunda istanbul evden eve nakliyat firması dumankayayı burdan herkese
    açık ve net olarak tafsiye etmekteyiz. Ofis Taşımacılığı uzman firması. İstanbul evden eve
    nakliyat firması.
    ofis taşımacılığıistanbul evden eve nakliyat
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total views
25,002
On SlideShare
0
From Embeds
0
Number of Embeds
14,133
Actions
Shares
0
Downloads
0
Comments
1
Likes
10
Embeds 0
No embeds

No notes for slide

The Motley Fool's Bull Vs. Bear Case for Baidu

  1. Based in China, Baidu provides Internet search services. The literal meaning of “baidu” is “hundreds of times.”
  2. Nasdaq: BIDU Stock price: $90.22CAPS Rating: 3 stars (59.00) P/E: 18.85
  3. Baidu’s Financials 2009 2010 2011 Last 12 MonthsRevenue $651.4 $1,200.5 $2,300.2 $3,578.5Net Income $217.5 $534.7 $1,053.1 $1,677.4Net Margin 33.4% 44.5% 45.8% 46.9%Cash from Operations $331.6 $712.9 $1,297.4 $1,995.1Capital Expenditures $64.2 $146.1 $296.0 $327.8Free Cash Flow $267.4 $566.8 $1,001.4 $1,667.3 • Source: Capital IQ. All figures in millions, except net margin.
  4. “Looking ahead, we are aware that our leading place in the market is dependent on our ability to stay ahead of the curve. This, in turn, relies onhaving the best talent, the best technology and the best understanding of our users and endcustomers… Almost 12 years after we found Baidu, we still firmly believe that we are just at the beginning stages of our success.” – Robin Li, Co-founder, Chairman, and CEO, Baidu
  5. • The dominant search engine in both PC and mobile markets.• Both PC and mobile opportunities are large.• Progress in mobile.• Taking steps to neutralize the competition.• Financially strong with superior profitability.• International expansion reduces dependence on China.• Has political influence and stands to benefit from recent PRC laws.
  6. The dominant search engine in both PC and mobile marketsBaidu dominates PC search in China, according to revenue:
  7. The dominant search engine in both PC and mobile marketsAnd by unique visits:
  8. The dominant search engine in both PC and mobile marketsIts PC revenue share continues to increase.
  9. The dominant search engine in both PC and mobile marketsBaidu’s ad revenue is the largest
  10. The dominant search engine in both PC and mobile marketsRecent stats show Baidu with 35-53% traffic share ofmobile search.
  11. The dominant search engine in both PC and mobile marketsMobile data vary widely, so it’s important to use several sources.
  12. • The dominant search engine in both PC and mobile markets.• Both PC and mobile opportunities are large.• Progress in mobile.• Taking steps to neutralize the competition.• Financially strong with superior profitability.• International expansion reduces dependence on China.• Has political influence and stands to benefit from recent PRC laws.
  13. Both PC and mobile opportunities are largeAt the end of 2012, China’s Internet population was 564 million.Remarkably, its penetration rate was only 42%.
  14. Both PC and mobile opportunities are large72% of China’s online users have broadband.Broadband is available in 88% of China’s villages.
  15. Both PC and mobile opportunities are large There are about 40 million Small toMedium Enterprises (SMEs) in China.Baidu’s customers include less than 1.5% of them.
  16. Both PC and mobile opportunities are largeAt the end of 2012, there were 290 million smartphones – just 22% penetration.China has more than 1 billion mobile subscribers.
  17. • The dominant search engine in both PC and mobile markets.• Both PC and mobile opportunities are large.• Progress in mobile.• Taking steps to neutralize the competition.• Financially strong with superior profitability.• International expansion reduces dependence on China.• Has political influence and stands to benefit from recent PRC laws.
  18. Progress in mobileBaidu has taken steps to be the default in mobile search. • It’s the default search engine in browsers with collective 65.8% share. • Partnered with two of the largest 3G providers, China Telecom and China Unicom, in 2009 to be their default search.
  19. Progress in mobileBaidu has introduced products & services to encourage logging in.• Personal Cloud Services (PCS) introduced in July 2012 provides 5 GB free storage.• Users can synchronize and share contacts, photos, etc. across multiple devices.• As of January 2013, had 30 million registered users and expects 100 million by year’s end.
  20. Progress in mobileBaidu is supporting app developers.• Last year, Baidu launched its "Seven Weapons," tools to make it easier and cheaper to develop apps on Baidus cloud• As of last fall, more than 100,000 developers had registered• Good apps will attract users to Baidus PCS
  21. Progress in mobileBaidu has some of the most popular apps.• In Q4 2012 conference call, CEO Robin Li said Baidu Maps was no.1 maps app in terms of daily users.• Most popular travel vertical is Baidus Qunar.
  22. Progress in mobileBaidu is making mobile search easier.• In late 2011, Baidu introduced BaiduInput to make typing onmobile devices faster and easier.•In Q4 2012, Baidu debuted Baidu Voice Assistant, claimedto be the most accurate, Chinese language, voice recognitiontechnology available.
  23. Progress in mobileBaidu is making mobile faster.• Baidus mobile browser provides faster downloads even with slow connections via data compression• Increased acceptance of its browser will reduce Baidus dependence on others
  24. Progress in mobileBaidu is making smartphones more affordable and stickier.• On Dec. 7, 2012, Baidu released its own smartphone made by FoxConn, the Changhong H5018.• It is the first smartphone to break the 1,000-yuan barrier.• The H5018 runs Baidus mobile operating system, Yi, has a 3- megapixel camera and is equipped with its Voice Assistant.
  25. • The dominant search engine in both PC and mobile markets.• Both PC and mobile opportunities are large.• Progress in mobile.• Taking steps to neutralize the competition.• Financially strong with superior profitability.• International expansion reduces dependence on China.• Has political influence and stands to benefit from recent PRC laws.
  26. Taking steps to neutralize the competitionBaidu is retaliating against Qihoo’s entry into search.• Qihoo replaced Baidus search engine in its browser with its own last August.• Baidu retaliated by launching its own anti-virus software in January after investing in Kingsoft, Qihoos chief competition.• Anti-virus is Qihoos key money maker.
  27. Taking steps to neutralize the competitionBaidu has taken other steps to blunt competitors’ impact.• In October 2012, it released the Baidu PC Faster suite aimed at Southeast Asian market -- believed to be a preemptive strike against possible expansion by Qihoo• Buyout of Providence Equitys stake in iQiyi thought to be response to Yuoku Todou merger last August
  28. • The dominant search engine in both PC and mobile markets.• Both PC and mobile opportunities are large.• Progress in mobile.• Taking steps to neutralize the competition.• Financially strong with superior profitability.• International expansion reduces dependence on China.• Has political influence and stands to benefit from recent PRC laws.
  29. Financially strong with superior profitabilityBaidu is larger and more profitable than its search competitors.• Baidu’s free cash flow is 40x that of Qihoo.• Baidus operating margin is more than 3 times higher than Qihoos.• Sohu hasnt reported a profit in 5 years
  30. Financially strong with superior profitabilityBaidu free cash flow has been steadily increasing.
  31. Financially strong with superior profitabilityQihoos operating margin has fallen much more than Baidus.
  32. • The dominant search engine in both PC and mobile markets.• Both PC and mobile opportunities are large.• Progress in mobile.• Taking steps to neutralize the competition.• Financially strong with superior profitability.• International expansion reduces dependence on China.• Has political influence and stands to benefit from recent PRC laws.
  33. International expansion reduces dependence on ChinaBaidu has been expanding internationally since 2008.• Baidu entered Japan in January 2008• Opened office in Australia in May 2012• Opened R&D center in Singapore in 2012• In January 2013 provided custom browser for MobiNIL in Egypt
  34. International expansion reduces dependence on ChinaSingapore joint venture with A*STAR creating technology forSoutheast Asia.• Baidu partnered with Singapores Agency for Science, Technology and Research (A*STAR)• Have already made speech recognition products for Thai and Vietnamese languages.• Have license for software, but not released yet.
  35. • The dominant search engine in both PC and mobile markets.• Both PC and mobile opportunities are large.• Progress in mobile.• Taking steps to neutralize the competition.• Financially strong with superior profitability.• International expansion reduces dependence on China.• Has political influence and stands to benefit from recent PRC laws.
  36. Has political influence and stands to benefit from recent PRC lawsBaidu is well-connected.• On Feb. 3, 2013, Li was named to PRCs top political advisory body for 5-year term• Membership opens networking opportunities
  37. Has political influence and stands to benefit from recent PRC lawsQihoos current relationship with Chinese government and othersis less amicable.• On Jan. 29, 2013, Qihoo was warned that its use of anti-virus software in browsers was unfair competition• Chinese PC users have long complained about how installing one program often forces them to install others• Apple has banned its apps from its App Store
  38. • Competition is fierce.• Mobile is the future, but monetization is hard.• Baidus search engine not optimized for mobile.• Baidus products not aligned with mobile users preferences.• Some previous diversification attempts have failed.• Revenue per customer and profitability are falling.
  39. Competition is fierceBaidus share price has plummeted since Qihoointroduced Its PC Search last August.
  40. Competition is fierceSeveral of Baidus competitors have formed alliances. • January, 2013, Google and Qihoo announced a partnership, allowing Googles ad system to access Qihoos search. • Sharing ad revenue will help Qihoo monetize search. • Feb. 8, 2013, rumors of a secret alliance between Qihoo and Sogou were reported in “Tech in Asia.” Combined PC search share 18%.
  41. Competition is fierceBaidu competes with more than search for onlinead revenue. • Advertisers split their budgets between various types of Internet sites • So, Baidu must compete with popular online shopping and social networking sites (SNS) too.
  42. Competition is fierceSome competitors ad revenue is growing faster than Baidus.
  43. • Competition is fierce.• Mobile is the future, but monetization is hard.• Baidus search engine not optimized for mobile.• Baidus products not aligned with mobile users preferences.• Some previous diversification attempts have failed.• Revenue per customer and profitability are falling.
  44. Mobile is the future but monetization is hardBy the end of 2012, China had 420 million mobile Internetusers vs. 398 million PC users.The mobile annual growth rate was 18%.
  45. Mobile is the future but monetization is hard Credit Suisse expects PC search growth in the single digits or even flat in 2013.Meanwhile, mobile search is growing at more than 100%.
  46. Mobile is the future but monetization is hardSmartphone screens are small.• Smartphone screens have nearly 10 times less usable area than the smallest PC screen• This severely restricts the space available for ads
  47. Mobile is the future but monetization is hardLimited space for ads limits income. • Typical PC screens can accommodate 8 ads without compromising the users experience. • Smartphones typically are limited to 2 ads
  48. Mobile is the future but monetization is hardMobile can result in competition with potential customers. • 75% of mobile users access the Internet using apps • Some advertisers have developed their own brand apps • Others work with the leading vertical search engines like Dianping for dining
  49. Mobile is the future but monetization is hardLower click through rates (CTR) and pricing limit adincome • Mobile CTRs are lower than on PCs • Cost per Click (CPC) is also lower for mobile
  50. Mobile is the future but monetization is hard.Mobile advertising is unattractive • Print size is small because screens are small • Small print is difficult for user to read • Difficult for advertisers to determine their ROI, making them reluctant to spend • Plus, only 5% of websites are adapted for the Wireless Application Protocol (WAP)
  51. Mobile is the future but monetization is hardLots of traffic, little revenue. • Credit Suisse estimates 39% of Baidus traffic in 2013 will come from mobile • But, only 2% of its search revenue
  52. • Competition is fierce.• Mobile is the future, but monetization is hard.• Baidus search engine not optimized for mobile.• Baidus products not aligned with mobile users preferences.• Some previous diversification attempts have failed.• Revenue per customer and profitability are falling.
  53. Baidu’s search engine not optimized for mobileBaidu’s search engine was adapted from its PC version. • In Credit Suisse test searches, Baidu returned less relevant local results than Easou • Easou was specifically developed for mobile • Mobile users want relevant, local info fast
  54. Baidu’s search engine not optimized for mobileUsers do change the default search engine. • Although Baidus search is the default on phones with 65.8% market share, only 48% of mobile search traffic comes from the default search engine • 13% comes from user-installed search engines, including Qihoo 360 and Easou
  55. • Competition is fierce.• Mobile is the future, but monetization is hard.• Baidus search engine not optimized for mobile.• Baidus products not aligned with mobile users preferences.• Some previous diversification attempts have failed.• Revenue per customer and profitability are falling.
  56. Baidu’s products not aligned with mobile users’ preferencesBaidu has little user-generated content (UGC) • Mobile users prefer to watch short videos and like UGC. • Youku Tudou provides short videos. • Baidus iQiyi runs longer, feature content and no UGC.
  57. Baidu’s products not aligned with mobile users’ preferencesBaidu’s focus too PC-oriented. • During the Q1 2012 conference call, CEO Robin Li made the following statement: "Box Computing embodies our mission for the future of the internet.“ • Typing in a search box is inconvenient for mobile users.
  58. • Competition is fierce.• Mobile is the future, but monetization is hard.• Baidus search engine not optimized for mobile.• Baidus products not aligned with mobile users preferences.• Some previous diversification attempts have failed.• Revenue per customer and profitability are falling.
  59. Some previous diversification attempts have failedDespite its resources Baidu has failed before. • In 2008, Baidu launched Youa to compete with Taobaos popular C2C site • In 2011, Baidu spun off Youa because it could not compete with Taobao
  60. • Competition is fierce.• Mobile is the future, but monetization is hard.• Baidus search engine not optimized for mobile.• Baidus products not aligned with mobile users preferences.• Some previous diversification attempts have failed.• Revenue per customer and profitability are falling.
  61. Revenue per customer and profitability are fallingMost new revenue is coming from small and mediumenterprises (SMEs) • Large companies have large ad budgets and require little support, making them more profitable customers. • SMEs have smaller budgets and require much more support, making them less profitable customers. • Only about 1,000 of Baidus customers are large accounts.
  62. Revenue per customer and profitability are fallingLess operating income is being generated per $ of sales.
  63. Revenue per customer and profitability are falling2011 was a banner year due to strong spending byBaidus big accounts.
  64. Baidu remains the dominant search company in China based on bothrevenue and unique visits, but growth is in mobile.
  65. Baidu is reducing its dependence onChina by taking advantage of its strong brand to expand internationally.
  66. Baidu is a very innovative company and has made several moves to increase its success in mobile, including its PCS, Baidu Voice Assistant and new, attractively priced smartphone.
  67. Baidu has the resources to succeed in mobile, but its reluctance to use UGC and its PC-based focus may handicap it.
  68. Baidu is financially stronger thanits search competitors, but Qihoo has teamed up with Google to help it monetize search.
  69. Significant profits from mobile arestill uncertain and Baidus operatingmargins may decline as it continues to invest in mobile.
  70. Competition in the Internet business is fierce in China, but Baidu is a strong competitor.

×