Baidu.com: Bull vs. Bear
From Motley Fool: Dueling Fools: Baidu.com Bull
By Rick Aristotle Munarriz
"Baidu bears have it wrong, though. The stock is not overvalued once you dig beneath the surface. Baidu's trailing revenue wouldn't seem to justify the company's $2.5 billion price tag at the moment. However, Baidu is also extremely profitable. Thanks to its shrewd operating prowess and China's low tax rates, Baidu sported 17.6% in net margins this past quarter."
"Baidu is profitable, with rich double-digit net margins right now. Yahoo! didn't shake the red-ink stink until its top line hit $591.8 million in 1999. Google made it earlier in its tenure, but last year the company produced $399.1 million in profits on $3.2 billion in revenue. That's a respectable 12.5% showing in net margins, but it's a far cry from what Baidu has working in its favor right now."
"The reason that Baidu is still so early in its revenue growth cycle despite being the market leader in the world's most populous nation is that most of China is not online. In fact, just 10% of the country's 1.3 billion residents have Internet access. How would you have liked to buy into Microsoft when just 10% of the country knew how to boot up a PC or Starbucks back when just 10% of the country was sipping premium java blends? That's the opportunity you have here with Baidu."
From Motley Fool: Dueling Fools: Baidu.com Bear
By Charly Travers
"So let's take the perspective of an investor who wants to hold for five years while Baidu.com goes through its growth phase. For this investment to pay off and make us some money, we need to see the company's market cap increase over this five-year holding period. For a small, high-risk growth company like Baidu.com, my hurdle rate would be an annual increase in value of 20%. This means Baidu.com needs to grow to a $6 billion market cap from today's $2.5 billion value to get me the kind of return I'm looking for."
"To get me the 20% return I'd want to make on this kind of investment, Baidu.com would need to grow earnings from the current $3 million to $156 million by 2010. And that's using a very generous P/E ratio of 40. This means that an investor buying Baidu.com today is counting on the company to grow earnings at an annual rate of 120% for five years.
Does that look like a good bet to you?"