Baidu started as an internet search tool in the Chinese market founded in 2000 by Robin Li. Since 2000, the brand has grown to include a large variety of products, including but not limited to web search, mobile application, encyclopedia, chat and games. They also offer an internet search tool in both Chinese and Japanese.
The internet industry is a fast paced low barrier to entry market. Therefore Baidu has multiple competitors. In fact, Baidu has over 4,000 industry competitors with annual revenue of approximately $30 billion. Key industry players include Google, Yahoo, Msn, Ebay, and the Chinese competitor Sina. The industry is also characterized by being able to adapt to rapid technological changes, evolving industry standards, and frequent new product and service development. In order to be successful in this industry a company must be flexible and adapt to these changes while remaining reliable to their customers. Customer loyalty in this industry is another key player. The number of worldwide consumers becoming more comfortable in using the internet to purchase goods or services is expected to grow, especially in developing countries. Children of all ages are starting to use the computer more frequently and at an earlier age. To gain the customer loyalty at a younger age is key in the Chinese market, so reliability is a huge factor in internet services. Especially as the number of online services increases while tariffs decrease will continue to drive robust growth.
Financial Analysis: For our analysis we performed a performance ratio analysis. The ration analysis is a convenient way to look at and compare financial statements for different companies and across time. Here are the ratios that we covered for Baidu. The company’s strength can be seen in multiple areas, such as robust revenue growth, largely has solid financial position with reasonable debt levels, impressive EPS growth and compelling growth in Net Income.
Baidu has very impressive revenue growth, greatly exceeded the industry average of 24.8%. From 2010 to 2011, revenue leaped by 92.04% and the Net Income increased by 96.8% from 2010 to 2011, which appeared to have helped boost the Earning Per Share. The Debt to Equity ratio of 0.34 and a Current Ratio of 3.6, which should have no problem meeting any short or long term financial obligations. The Return on Equity has improve slightly from 19% to 20% in 2010 and 2011. This can be a modest strength for the company. Comparing to other companies in the similar industry and overall market, Baidu’s ROE exceeded both of them.
Stock Price Valuation: The stock P/E, P/B, P/S, and P/CF ratios indicate a premium compared to the industry average and S&P 500. The reason is that Baidu is a high growth company. Faster growth can justify higher price multiples. The major concern here is extremely high P/B, which can make the stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. SWOT Summary: Baidu’s strengths include having a large Chinese market share, with a large Chinese population. Within in the industry there are many growth opportunities. They have a strong brand image and they are their niche market leader. Opportunities include the rapid changing technology within the industry segment. They will have an open door to create new and innovative products within a different class of services. Also within the local market there are few major…