Great businesses like search engines rarely go on sale. We’ve all watched Google and seen how special search can be. Only four countries in the world have developed their own search businesses: US, China, Korea and Russia. In China, Baidu controls 76% of the search market and is the fifth most visited website in the world. Despite this, the share price is down almost half since peaking in February this year.
The numbers are pretty compelling – for $62 billion you can buy China’s number one search engine that generates $3.4 billion in operating profit, a cloud business growing 71% annually, a portfolio of AI plays, and $25 billion in cash and short-term investments. Strip out the cash and short-term investments and you’re basically paying 10x earnings for China’s number one search business.
So why’s this the case? There is the general unease about China and the increasing reach of Chinese regulators that has seen the whole Chinese market sell off. At the same time Baidu has been losing online advertising market share, especially to short form video platforms, and revenue fell during COVID while many competitors saw their’s increase. However, at the same time, metrics like daily active users, search volume and feed time are rising, and Baidu was able to fend off Tencent’s attempt to get into search with WeChat Search.
Depending on which side of the narrative you believe, Baidu could be an incredibly attractive business trading at a great valuation, or a legacy tech business losing market share and revenue in a highly uncertain regulatory environment. This deep dive take a good look at Baidu and will help you build the knowledge to answer this question yourself.
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