Buy Baidu (BIDU)
Doing some catch up on this stock. I added Baidu (BIDU) to the Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on January 18, but this is the first time I’ve had an opportunity to explain why in detail or to actually add it to the portfolio. I’m working on explaining the other sells and buys announced on January 18 from that group over the next week or so.
Great quarter for Baidu (BIDU) and I certainly like the way the operator of China’s most popular search engine has made hay from Google’s (GOOG) problems in China. Looking forward I think growth will continue at the current torrid pace but margins are likely to fall as Baidu expands into new markets and as competitors try to take market share in search.
For the fourth quarter, announced on January 31, Baidu reported that sales increased by 94% (to 2.45 billion Yuan or $372 million) from the fourth quarter of 2009. Net income more than doubled to 1.16 billion Yuan ($176 million) from 428 million Yuan in the fourth quarter of 2009.
For the first quarter of 2011 Baidu projected that revenue will range from 2.38 billion to 2.45 billion. That would be essentially flat with fourth quarter revenue. But the forecast is an increase from the 2.3 billion Yuan consensus among the analysts who follow the company and year-to-year growth would climb to 84.5% from the first quarter of 2010. That would be enough to keep the company’s record of accelerating growth intact since year-to-year growth in the first quarter of 2010 was just 59.6% from the first quarter of 2009.
Baidu’s market share in search grew to 75.5% from 73% in the third quarter of 2010. Read more
Buy Baidu (BIDU)
Shares of Baidu (BIDU), China’s leading Internet search provider, have been drifting lower since a November 11 high of $114.10—until yesterday. As of the close in New York, the shares had moved up to $101.25, a 2.5% gain on the day.
The most recent part of the price decline traces back to comments by Haoyu Shen, Baidu’s vice president of Business operations, that growth will slow next year. “We had a major re-acceleration this year, that’s due to a few reasons,” he told Reuters on December 15. “For these reasons, it most likely won’t repeat itself next year.”
I think that’s true if you’re looking just at Baidu’s market share. The company saw its share of the Chinese search market grow to 73% in the third quarter of 2010 from 71% in the previous quarter. That growth came largely at the expense of Google (GOOG), which saw its market share decline to 25% from 27% for the quarter. After protesting the Chinese government’s efforts to censor its search results in China, Google shut down its mainland China site. It is, as Baidu’s vice-president notes, unlikely that this kind of market share growth due to troubles at a competitor will fall into Baidu’s lap in 2011.
But while Baidu’s market share growth may have peaked, the Internet ad market is just getting started in China and Baidu is just at the beginning of turning market share into ad yuan. Read more
5 stocks for the next generation Internet
Sigh, another thing to worry about. The U.S. is falling behind in the Internet race.
According to Akamai Technologies (AKAM), average Internet access speeds in the United States were just 18th fastest in the world at the end of the fourth quarter of 2009. And if you rank countries on the percentage of connections with speeds above 2Mbs (Megabits per second), the United States ranks just 40th.
I bet you can guess who’s winning. 62 of the top cities for speed were in Asia. The three top countries for speed, according to Akamai, were South Korea, Hong Kong (which Akamai counted as a country, but don’t tell the folks in Beijing), and Japan. Those three countries were also the only three to average connection speeds higher than 7.5Mbs.
Akamai, which in the business of accelerating Internet content over its global content delivery network (CDN) isn’t the only one to notice.
The FCC (Federal Communications Commission) has sent a 10-year plan to Congress that envisions a new high-speed, broadband Internet as the core of the U.S. communication network. The agency notes that roughly one-third of Americans don’t have high-speed Internet connections because they live in areas without high-speed service, can’t afford high-speed service, or have never signed up for it because they don’t see the benefits. The FCC has proposed diverting money from the Universal Service Fund, which now spends $8 billion collected from surcharges on telephone service to subsidize phone service for rural or poor Americans, adding that to money collected by auctioning off 500 Megahertz of over-the-air spectrum now used by TV broadcasters, and then using that funding for its 100 Squared plan to equip 100 million U.S. households with high-speed Internet at 100Mbs by the end of the decade.
Proponents of the FCC plan—and you might imagine TV broadcasters aren’t exactly thrilled—say that greater access to higher speed Internet connections is critical to U.S. economic competitiveness in the decades ahead. Slower speeds will raise costs for business and consumers by limiting such innovations as digital healthcare networks. New products that require high speed connections won’t be built or used here meaning that the jobs that go with the creation of these new products will go elsewhere. The comparative productivity of U.S. workers will suffer as workers in high-speed countries can more quickly communicate, share work, hold meetings or access data.
Anybody who now suffers with the inefficiencies of a slow or spotty mobile phone connection knows that argument is true.
The crisis, which is what the FCC argues that we’re facing, isn’t a solely U.S. phenomenon. Internet speeds are dropping all over the world, largely because increasing numbers of people are accessing the Internet over relatively slow mobile phone networks. Traffic from narrowband connections to Akamai’s network increased by 41% in the fourth quarter.
In crisis lies opportunity, investors know. So what companies and stocks might benefit from attempt to end the crisis? Read more
Google’s China troubles not so great for Baidu?
Troubles at Baidu (BIDU)?
Traders jumped into shares of Baidu last week on the theory that Google’s (GOOG) troubles in China—and the likely shutdown of the company’s Chinese search engine—would be good news for the biggest domestic search company.
Today they seem to be having second thoughts. Baidu shares were down almost 8%–$36.68 a share—at 11:15 in New York. Read more
