Baidu is the dominant search engine in China, with 79% of the search market share. While it dominates desktop search, mobile search represents significant growth and greater competition. Baidu is also diversifying its revenue streams through acquisitions like Nuomi, a group buying site. The company has significant cash reserves and financial stability. However, it also faces risks from increasing competition in mobile and a potential economic slowdown in China.

1. Stock Pitch: Baidu, Inc.
Ticker: BIDU
Spring 2014 2/4/14

2. “The Chinese Google”
 Founded in 2000
 Compare baidu.com to google.com
 Most revenue comes from online marketing
 The dominant internet search engine in China
 Key business driver
 Helps new ventures
 79% Revenue Share
 470,000,000 search users in China
 86% prefer Baidu

3. Continued Overview
 Clear push towards mobile
 Market leader in mobile search
 80 million active users
 Gateway for discovering apps
 Search “accounting apps”, receive relevant
results
 Moving towards diversification
 Looking to diversify revenue stream
 Most recently acquired the remaining portion of
Nuomi.com
 Similar to Groupon

4. Risks & Concerns
 While Baidu dominates PC search, the mobile
market is very young and anybody’s game
 Mobile will experience the most growth
 Mobile search is less profitable
 Smaller screen size & slower internet speed
 Much more competitive
 Very volatile for trading
 Beta: 1.63 - 2.38
 52wk Range: 82.98-185.5

5. Speaking of volatile..

6. Risks & Concerns Continued
 Baidu is actively expanding into non-search
areas
 Much like GOOG: YouTube, Maps, etc.
 May affect overall margins
 Baidu relies heavily on small/medium sized
businesses
 Rely on Baidu to reach customers
 An economic downturn could be particularly
hard on revenues

7. Solid Foundation
 Dominates the PC market and analysts believe
this will not change any time soon
 Baidu’s data helps improve other wings of
business
 Can monitor each click
 Narrow economic moat
 Recent diversification fends off competition
 Baidu Knows, Music & Video Streaming, Etc.
 Heavily built on Network Effect
 Moat is limited by increasing competition and the
rapid tech cycle

8. Building A Moat

9. Growth
 China is home to as many as 50 million small-
to-medium enterprises
 Expected growth rates in double digits for next
few years
 E-commerce is expanding rapidly in China
 Internet penetration rate in China only at 42%
 Government plans to invest $323 Billion by
2020 to expand connectivity

10. Growth Continued
 Acquisitions
 Sitting on $33 Billion cash pile
 Free cash flow at $9,430,000
 Stable Health
 Quick Ratio of 4.1
 ROA & ROE much higher than industry
average

11. Revenue Growth
Baidu Revenue
2008
2009
2010
2011
2012
Online Marketing Services $3,194,461.00 $4,445,410.00 $7,912,869.00 $14,489,767.00 $22,245,643.00
Other Services
$3,791.00
$2,466.00
$2,205.00
$11,019.00
$60,383.00
*Years ended 12/31
*In RMB (Chinese Yuan)
*In thousands expect per share and per ADS data
Net income has increased from $1,048,108 to $10,456,028 during this
period

12. Biggest Selling Point
 Price/Earnings


Market Value PS / EPS
Between 2005 and now, P/E has shrunk from 344.8 to
32.69
 Mainly due to expanding revenue
 Revenue growth (3 yr avg.): 71.2%
 Industry avg.: 22.6%


Forward P/E estimates: 3-5
Industry Average: 43.5
 Fair Value estimate recently changed from 140
(10/30/13) to 206 (1/27/14) per Morningstar

Price/Fair Value has dropped from 1.17 to around .76

13. Verdict
 Soft Buy
 I believe Baidu has the ability to reach 200 and
higher within the next year
 Around 25% annual return
 Primary concerns with price
 Stock has increased dramatically in value in the
past year
 Many along for the ride may drop out
 Points of optimism
 P/E shrinking, revenue increasing
 Financially stable