Andrew Willis: It’s hard to imagine Google as a small player compared to any company. But that’s the case in China. With a puny two percent of the market compared to Baidu’s 75 percent, it looks like China’s one and a half billion consumers aren’t “googling” it.
For Baidu, becoming China’s home-grown, native language search engine hasn’t been easy. It has had to make massive investments and survive on tight margins. Meanwhile, Chinese consumer health concerns, falling advertising revenues and the expensive development of a product ecosystem surrounding its core search engine offering has seen the stock plummet by around 50% over the last year.
But search engine success stories like Google’s also started with spending, and we believe Baidu has built a solid foundation for sustainable growth. Our equity analyst Chelsey Tam says Baidu is about to slow down on the spending – and cash in.
Currently going for around 122 U.S. dollars a share, we think that Baidu’s worth closer to 200 U.S. dollars a share – we think its significantly undervalued.
Think about Google’s array of offerings and revenue streams – from search products, to social media, to software. Now apply that to billions of consumers who are just beginning to get the spending bug. We predict a multi-trillion-dollar ecommerce economy in China, and we just saw e-commerce giant Alibaba rake in a record 38.3 billion U.S. dollars. in one day, last week
Now what do these recent run-ups in consumer spending look like for Baidu’s core operating income? A 146% quarter-over-quarter improvement! Baidu’s just beginning to give us a preview of their potential.
Now at nearly 190 million users on its core app, and an entire ecosystem of complementary businesses such as iQiyi – the Netflix of China if you will – which alone contributes an additional 105 million users, it’s clear that investors should be tuning into Baidu.
For Morningstar, I’m Andrew Willis.
