In a previous article, I analyzed three popular Web 2.0 companies: Facebook, Groupon and Zynga. In addition to these Web 2.0 companies, it is also worth analyzing some traditional Internet companies which looks good from a long term investment perspective. I like Baidu (NASDAQ:BIDU), Yahoo (NASDAQ:YHOO) and Makemytrip the most among them. Here’s a look at these companies in detail.
Baidu.com, Inc. (ADR) (NASDAQ:BIDU)
In order to compete with Qihoo's anti-virus software, Baidu announced in December 2012 that it will raise ~$1.5 billion in the form of bonds to make strategic acquisitions. It intends to acquire Kingsoft Internet Security (KIS), the third largest anti-virus software provider in China with ~150 million users. By including Kingsoft's security features in its searches, Baidu would improve the level of safety in its searches and with Kingsoft's wide product range, which includes Kingsoft Antivirus, Kingsoft Security Defender, Cheetah Browser and Kingsoft Mobile Defender, the company will be able to expand its distribution channel. Along with this KIS will also help Baidu to improve the user privacy issues which will in turn increase the traffic share.
Apart from this, I feel that online travel and videos will see an upward trend in China in future. It is expected that online travel sales will grow by ~5% next year. Baidu is all set to handle the upcoming increase with its subsidiaries Qunar, the online search engine and iQiyi, the online video website. Qunar is now the largest online travel integration website of China which integrates more than 400 online travel agencies. In addition to that, it is expected that in future mobile video will see the fastest growth with respect to data traffic and will account for ~70% of the total mobile traffic. I feel that iQiyi, the second largest online video website of the country, will be able to cope up with this increase as it was able to grow to ~28% in mobile traffic in December, 2012 from last year’s ~4% only.
Baidu currently dominates ~80% of the Chinese search revenue and traffic, but after looking at the above factors I feel that in 2013 the company is sincerely planning to increase its share in the growing market.
Yahoo! Inc. (NASDAQ:YHOO)
Approximately 35% of the direct response advertising has already moved from the T.V. Ecosystem to Internet. The remaining branded ads from the ~$150 billion industry are also increasingly shifting to Internet through means which include premium videos. Yahoo is one of the leading creator and platform providers for airing such videos. It is estimated that the online video advertisement spending will grow ~33% per annum from ~$3.1 billion in 2012 to ~$7.1 billion in 2015. In addition to this, the cost/thousand views(CPM) for these ads is ~$30 which is ~20% more than that on a television network and but these ads can be produced at a lower cost. Hence Yahoo should be a major contender to receive the benefits of the rising revenue from the premium online videos.
Along with that, the change in its management seems promising and it is expected that in 2013 Yahoo will give due focus to product innovation and up-gradation. The new CEO, Marissa Mayer, has indicated that the company will focus on revamping the search need, work on distribution deals, improve customization, display sales focus and try to capitalize the mobile opportunities. Under the same initiative the company recently redesigned Flickr and Yahoo! Mail to provide improved user experience.
I feel that the company will be able to capitalize the benefits of the increasing demand for made-for-internet premium videos by marketers and the new up-gradations.
Apart from this, the company also sold ~20% of its stake in Alibaba last year and will sell half of the remaining at the time of Alibaba's IPO. Around $2.85 billion from the cash generated will be used by Yahoo to perform a share buyback.