Competitive Landscape Changes for Baidu
New Finance submits: It is time for a competitor update to my coverage of Baidu (BIDU) before the earnings release next week. A lot has happened since my last article, and I’m hoping to sift through what is material and what has simply been posturing. Items of interest have ranged from a flare up between Google (GOOG) and the Chinese government to the birth of a strange Baidu blog last week targeting Western, English speaking internet users. Most of these things are immaterial to the fundamental valuation of Baidu, but some of them are more noteworthy, including the full implementation of the Phoenix nest platform and an arrangement with Rakuten. First, though, let’s take a quick look at what is so appealing about Baidu in the first place.
A quick review of BIDU will show that their explosive growth in revenue over the past decade has been paced only by the equally intense growth of their multiples, stock price and market cap. Baidu has as much as 73% of search revenue in China, is a favorite of the state and should be in an even better position to grow than before. Their multiples however, are what many analysts have had qualms with up to this point. Their mid thirties times trailing earnings are unheard of in history for a company that has turned out to be a good investment. The unpredictable Chinese government also provides some investors with sovereign risk woes. Most of the time, these kinds of multiple valuations prove to be red flags. Complete Story »
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