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Baidu: A Chinese Staple That Faces Short-Term HeadwindsFeb. 20, 2019
Summary
Baidu is a staple Chinese company with high brand recognition.
There are competitors, some of which are beginning to pressure the current operations and the future of search within China.
Baidu trades at attractive multiples based on historical data, but there are future obstacles that need to be assessed in order to determine value.
Short-term headwinds including:-
1. Trade war
2. Slowing economy
3. Slump in advertisement demand
4. Increased competition
5. Centralizing services
Recently, analysts have been worried about the rise in popularity of competitor
Sogou (SOGO). I do not foresee Sogou to be the issue, as the company is forecasting very slow growth (single digits). Rather, I am more worried about
Alibaba's (BABA) Shenma platform, but less so than I was a year ago.
Shenma has been in existence for years, but Alibaba is beginning to up its investment in order to create an all-encompassing mobile ecosystem.
As of the latest quarter (Q318),
online marketing services represented 80% of total revenues. As of year-end 2017, mobile revenues composed 76% of total revenues.
Shenma operates the UC Browser, which is the 2nd most popular browser within China, owning just over 12% of the market.
This leads to a second fear, and that is Tencent (OTCPK:TCEHY). Tencent is another powerhouse within China and owns the QQ platform. QQ owns and operates the QQ Browser, which is comparable to UC Browser in terms of market share. However, Tencent also owns WeChat, which is the most popular social media platform in the country.
Baidu is also not sitting idle - rather, it has partnered with JD.com (JD) in order to integrate its marketplace into Baidu's app.
Valuation
P/E for the stock is also trading at more than a 50% discount based on 5-year averages, and even the forward P/E is low when we consider the PEG ratio, which currently sits below 1 (indicating undervaluation based on growth).
There is more to Baidu than just ads though. I did not mention DuerOS, iQiyi, or Apollo.
Source: Seeking Alpha
https://seekingalpha.com/article/424268 ... ngcom_feed
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