Baidu Review: Chinese Google with problems

Обзор Baidu: китайский Google с проблемами

BaiduBIDU$135.82BuyService in partnership with Tinkoff Investments. Quotes are updated every 15 minutes

Baidu (NASDAQ: START) - Chinese search engine, local equivalent Google. It is relatively inexpensive and even promising, but there are some good reasons, by which investors bypass these shares.

When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

What do they earn

It is a search engine and an Internet platform - in fact, Chinese Google. Here's what the company's revenue looks like, according to its annual report:

  1. Baidu Platform Marketing - 59,37%.
  2. Paid subscription to the iQIYI content library — 13,42%.
  3. Cloud Computing Powered by Baidu Division - 12,1%.
  4. Advertising on the iQIYI platform - 5,67%.
  5. The mysterious "other" based on the capacity of the Baidu division - 4,98%. This includes company projects such as self-driving cars and creating a mobile ecosystem..
  6. iQIYI content sublicensing — 2,48%.
  7. Other income from iQIYI division — 1,98%. Online Games, Streaming, online literature, creative agency services, intellectual property licensing.

Everything, related to Baidu, has a total margin in the area 14,24% from division revenue. But iQIYI is unprofitable: expenses of a single unit for 20,2% exceed revenue.

The company has revenue outside China, but the exact proportion is not reported.

Обзор Baidu: китайский Google с проблемами

Обзор Baidu: китайский Google с проблемами

Arguments in favor of the company

"The world was falling apart, people were losing their minds. Normality index, showing the situation in the world and individual countries relative to the level of February 2020, in the case of China shows a picture, good for Baidu: 16 March, China's figures were 66,5. That is, China is now a third short of its own indicators of social activity of the era before the pandemic: people in general spend less time outside the home.

In two weeks, elapsed since the last index update, China introduced strict quarantine in the main centers of economic activity. For example, quarantined shanghai.

I would wait, that all this will lead to a surge in Internet activity and improve business conditions for Baidu. The Chinese government is also interested in the development of rapid digital activity of the Chinese. After all, if people are not busy in quarantine, then they themselves will occupy themselves with going out into the streets in order to rebel.

  From my story

Обзор Baidu: китайский Google с проблемами

Just like Google. Baidu report is full of big words about artificial intelligence and technologies of the future type of self-driving cars, which the company is actively testing on Chinese roads.

The situation makes it possible to modestly hope, that Baidu shares will be pumped up by patriotic Chinese investors on the Chinese stock exchange: China is actively developing AI research, and therefore inflating the capitalization of relevant companies will help attract private capital in this area. Baidu is at the forefront of developing high-tech industries in China and pays a lot of money to American specialists.

This can really attract a lot of investors to the Chinese shares of the company.. When the gap between the value of Baidu's shares in the US and China becomes very obvious, investors will be able to take her American ADR — and here we are talking about investing in American ADR companies. Let the Chinese registration of Baidu interfere with this.

Обзор Baidu: китайский Google с проблемами

Cheap. The company looks a bit undervalued. With P / S 2,67, P / E 32.7 and, finally, stubbornly ignoring its successes, the market gives the impression, that these stocks may rise soon. Still, “Chinese Google” is a very serious claim, even with all the skepticism about China.. According to the logic of the stock market, such a company can, and should cost more: even Baidu's most deceitful notions have interesting potential.

Обзор Baidu: китайский Google с проблемами

Earnings per share of the company in dollars

1к2021 2к2021 3к2021 4к2021 1к2022
Current price 1,89 2,38 2,27 1,83
Forecast 1,60 2,03 1,98 1,44 0,89

What can get in the way

Submissive Cat Investor, a bowl of futures and +50 investment rating. The Chinese registration of the company is a problem for a number of reasons.

Firstly, must be taken into account, that the Baidu shares in question are not those of the original Chinese Baidu, but just shares of a shell company from the Caymans. In our case, this means, that these Baidu shares could easily turn into candy wrappers at the behest of the owners of the real Baidu. Or at the behest of American regulators, who can get to the bottom of the company and probably find a lot of interesting things.

Secondly, China's domestic political landscape is full of dangers and pitfalls. So Baidu's shares can turn into candy wrappers not only at the behest of its management, but also at the behest of Beijing. As you remember, Chinese tech stocks went to hell last year amid fears of increased government regulation. Then, Really, Chinese regulators verbally turned on the back, but it's highly likely, that history will repeat itself.

  Industry indices at Yahoo Finance

Thirdly, hopes that the Chinese themselves will inflate Baidu's capitalization may not come true. The hypothesis that, that the company will be pumped up by major investors affiliated with the Communist Party of China, not yet proven. And even worse: there are signs to the contrary. Baidu in March 2021 placed $3.05 billion worth of new shares on the Hong Kong stock exchange, and there was no crazy demand for them. Seems to be, there is not much liquidity inside China, investor interest and just money for that, to pump up Chinese tech giants.

And finally, fourthly, U.S. investors may simply ignore Baidu shares for political reasons. The United States in every possible way demonstrates a desire to strangle China's technology companies. Reducing the ability of Chinese companies to obtain funding within the United States is seen as an integral part of this strategy..

Very likely scenario, at which Baidu shares in China will fly into the stratosphere, while US investors will ignore US ADRs. This may explain, why Baidu's stock has been treading water for so long with good fundamental data from its business. And no, it's not an incredible option: we all remember, how London shares of Russian companies began to cost a cent apiece.

Обзор Baidu: китайский Google с проблемами

Resume

Baidu is an interesting company with good potential. But her Chinese registration poses too many risks.. Therefore, I would postpone investing in these shares for the time being and wait for some more definite signals from the Communist Party of China on measures to support Chinese business. Or just positive statistics from China, which will be relevant for Baidu. Or waited, when the value of the company's shares would fall even more and its cheapness would become too obvious even for the most biased investors.

Scroll up