Baidu.com, Inc. (ADR) (NASDAQ:BIDU)

CAPS Rating: 4 out of 5

Baidu is the leading Chinese-language Internet search provider.

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Player Avatar TMFInnovator (34.92) Submitted: 4/22/2013 2:26:03 PM : Outperform Start Price: $85.89 BIDU Score: +62.17

- "Baidu" literally means "hundreds of times". Sounds eerily similar to "Google"..
- Success begets success. Baidu is the dominant search engine in China, with nearly 3/4 of unique search visits. As Google proved in the US, users will gravitate to the most efficient product that provides the best search results. This, in turn, attracts more advertising revenue. The network effect, in full effect.
- Baidu has had a successful initial campaign into mobile, accounting for ~50% of mobile search in China. They are investing heavily in this platform, trying to maximize user experience. Deals with China Telecom and China Unicom have been negotiated for Baidu to be the default search provider.

Risks include potential up-and-coming search competitors, such as Qihoo. A friend of mine living in China said that BIDU was the more "formal" search engine, but that there were in fact others that users would sometimes go to instead (the example he gave was to find pirated mp3s). From at least this one perspective, it seems that Baidu has a strong business reputation for search in China.

Consensus estimates for 2013 earnings are $5.34, which puts Baidu's forward P/E at only 16. But this is a growth company with tons of potential ways to monetize (optionality), and I believe the valuation to be far too low.

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