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Bull/Bear Stock Report: Baidu
Well it was bound to happen eventually. I knew at some point I would choose a stock whereby it would be virtually impossible to compile both a bull case and a bear case.
I just didn't think it would happen so soon.
My choice of Baidu.com (BIDU), the Chinese internet search company, on the heels of my report on Google (GOOG) was meant to provide a contrast. Instead, I found a stock so reprehensibly over valued that I could not find one good bull comment on the stock.
Unlike our discussion of Sirius Satellite Radio (SIRI) whereby I provided the bull case, I leave this report for the bears. I found two good comments on BIDU that you will find below.
The analysis for BIDU can be summarized fairly easily: shares trade for a nosebleed valuation at a time when the markets are teetering and heading lower.
So what did our bloggers have to say about Baidu.com and its prospects?
Certainly a high valuation alone should not disqualify a stock from consideration on the bull side. I love SIRI and most would agree that stock trades for a very healthy valuation. The problem with a high valuation stock is that there is absolutely no margin for error
In the case of BIDU, there are many factors that could derail the stock. Competition, global recession and moves by the Chinese government to slow its domestic economy are but a few.
I can appreciate the attraction of BIDU and the billion or so potential customers, but please. There will be a time when BIDU is attractive, but now is not that time. In my opinion BIDU should be avoided at all costs.
But, that's my opinion. Read on for two great posts on BIDU from our bloggers.
The Bear Case I - Keith Barton: BIDU? Isn't that like fiddling while Rome burns?
With nearly everything "taking it in the shorts" I'm less inclined to take a long position on anything, especially a high valuation "Internet Darling" like a search engine. GOOG is the preffered entity in this space, and it's decline from 714 to 446 speaks volumes.
The Question of the Week is better suited on a broader topic like; "which Fast Food restaurant has the coolest uniform" (because I'll be working there next week) or "which soup kitchen serves Cambell's Noodle" - times are grim, and most pundits are missing the big picture.
With a hot stock growing cold in a single day's trading, I'm not looking to increase my long position with anything. It's not pleasant, but Bear Stearns has thrown the gauntlet, and it appears what everyone has pretended wasn't happening - is happening.
I'm sure they'll be a brief uptick as a result of the FOMC meeting this week. If so, likely I'll be trimming my long position by 20-30% selling into the 120 minute rally that results. John Markman's piece this week suggests it's prudent to do so - and I'm thinking he's right.
It's not about timing the Market, as that's beastial hard - it's about not being the last guy holding the bag.
Bear Case II - Don Barrett: To Baidu or Selldu
Baidu is a Chinese language internet search engine located in Beijing,China. Baidu was incorporated in 2000 and has a current market cap of $9.15 billion. Bidu has on online auction,P4P, which allows clients of Bidu to bid on the positioning of their links based on what they are willing to pay.
Baidu reported 4th quarter 2007 earnings and they had some great improvements in gross revenue and net revenue. Revenue jumped 110 % over 4th quarter 2006 revenue to $78 million. Net revenue jumped 79 % over 4th quarter 2006 to $30 million or .87 cents per share. Bidu had a $10 million dollar charge related to expansion into Japan and this will be a future revenue source.
China is booming and it's possible to find companys with phenomenal growth like Baidu. The internet is in it's infancy in China and will continue to grow along with many other business models.
At this time I would still be hesitant to invest in Biadu. Baidu has couple of giants trailing it and trouble could on the horizon. Biadu currently has 60 % of the Chinese internet search traffic,but guess whos closing in? Google and Yahoo-China. As I said earlier the Chinese internet model is in its infancy and Baidu has a 60 % market share,but Google has 29% and Yahoo-China has 10 %.
This is great for now, but Google I think will soon start gaining market share from Baidu. And then you have Yahoo-China. Yahoo-China has 10 % of the traffic now,but they own 10 % of Alibaba,the largest ecommerce site in China and 40 % of the Alibaba Group parent company of Alibaba and Alibaba Group controls 69 % of all the online transaction traffic in China.
My outlook is Microsoft buys Yahoo and that gives Microsoft a huge foot print in China. That gives all of Yahoo a new management and pools all the resources of Yahoo and Microsoft and that makes Microsoft the leader in China.
For those with a higher risk tolerance, my analysis of BIDU suggests that shorting the stock is worthy of the speculation. This stock faces plenty of headwinds that could result in a very sharp correction to the downside.
Of course in this market that means the stock could move higher by 20%.
Jamie Dlugosch
Executive Editor, InvestorPlaceBlogs
For additional information on Baidu, visit:
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