Financials
In the fourth quarter, Baidu.com, Inc. (ADR) (NASDAQ:BIDU)’s “market share by revenue” increased marginally to 78.1% from 77.8% of the third quarter. Less than 10% of Baidu’s revenue in the last quarter came from mobile ads; which definitely is a pain point. But seeing the above mobile strategies already laid out, investors can anticipate increasing contribution from this segment in the time to come.
Balance sheet analysis: Financial leverage for Baidu increased in 2012 and margins were slightly weaker. But the overall financial profile remains good, reflecting strong cash generation capability. Baidu ended 2012 with $5.28 billion cash equivalents and short-term investments. Baidu.com, Inc. (ADR) (NASDAQ:BIDU)’s total revenue for the year was $3.62 billion; up by 54% year over year. Operating profit in 2012 was $1.80 billion, a 46% increase over 2011.
| 2009 | 2010 | 2011 | Last 12 months | |
|---|---|---|---|---|
| Revenue | $651.4 | $1200.5 | $2300.2 | $3578.5 |
| Net Income | $217.5 | $534.7 | $1053.1 | $1677.4 |
| Net Margin | 33.4% | 44.5% | 45.8% | 46.9% |
| Cash From Operations | $331.6 | $712.9 | $1297.4 | $1995.1 |
| Capital Expenditures | $64.2 | $146.1 | $296.0 | $327.8 |
| Free Cash flow | $267.4 | $566.8 | $1001.4 | $1667.3 |
Source: Capital IQ. All figures are in million except Net Margin
Baidu’s free cash flow is around 40 times that of Qihoo. And its rival Sohu has not reported a profit in last 5 years. Baidu is also low in debt (around $1.9 billion debt) and strong cash holdings. In order to increase its mobile penetration, Baidu could possibly use the free cash flow of $1667.3 million for the takeover of its rival Sina.
The investing opportunity
Baidu.com, Inc. (ADR) (NASDAQ:BIDU) will maintain its position as the market leader in China’s online search market, which is still in an infant stage. The transition from PC to mobile will surely benefit the company in the future and will help in generating incremental traffic and revenue.
In terms of valuation, this stock is cheap at the current price, trading at 12.8 times forward P/E, in comparison to Sina and Qihoo, which trade with forward P/E of 30.7 and 18.7 respectively. And this makes Baidu promising company for long-term buy and hold.
Last year, Qihoo had about $0.70 in revenue per user and Sina had revenue per user of $3, in comparison to $8.50 for Baidu. No doubt, these figures are very small compared to Baidu.com, Inc. (ADR) (NASDAQ:BIDU), but seeing the rapid growth of Qihoo and Sina, I would also recommend these stocks for a long-term buy.
The article Is it The Right Time to Buy This Search Giant? originally appeared on Fool.com and is written by Ranu D.
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