Robust Baidu

ROBUST BAIDU

A CLOSE LOOK AT BAIDU’S FINANCIAL REPORT

2013PTA in Principal of Accounting

Submitted By:

Shanghai Advanced Institute of Finance

S.J.T.U

Shanghai, China

【Abstract】Baidu (BIDU), established in 2000, is now the biggest player in China’s online search market. In addition to its core web search products, the company also provides community based products like Baidu PostBar (Chinese-language community platform), Baidu Knows (Chinese knowledge sharing platform) and Baidu Encyclopedia. Unlike its competitors, Qihoo(QIHU), for example, who changed its revenue contribution dramatically over the years, Baidu collected most of its revenue from online marketing services (basically online search ads). To be more specific, around 99% of Baidu's revenue was generated through online marketing services in the year ended 2012, showing its constant stability, appealing to investors from the western countries. This essay tries to make a brief fundamental analysis on Baidu based on its financial report in 2012. We start from the profitability analysis, then check Baidu’s cost control, and end with the capital structure summarize. Our goal is to see whether Baidu is worth investing.

Profitability analysis

As the leader in China’s online search market, as of Q2 2012, Baidu holds more than 78% market shares, while the second position Google China (GOOG) possesses only 15.7%.

Source: Imeigu, www.imeigu.com

In August 2012, Qihoo (QIHU) launched its own search engine and its market share jumped to 10.5% within several months, shrinking Baidu’s market share to 71.5% at the end of year 2012 (further decline to 61.18%, as of today), according to iRsearch. Even so, at the current stage, we have no doubt about Baidu’s domination and incomparable impact on China’s online search market.

Considering China’s largest internet user population in the world, namely 564 million, and Baidu’s leadership in the industry, we can foresee Baidu’s huge profitability....