Financial Data Analysis - Baidu Company - Case Study Example

Table of Contents Company Background . . . . . . . 2 Summary . . . . . . 2 History . . . . . . 2 Industry . . . . . . 4 Competitors . . . . .. 4 Stock Price Analysis . . . . . . . 5 Risk and Return Analysis . . . . . . . 8 Resources . . . . . . . 10 Background Company Summary Baidu Company is a large company dealing with the provision of search services in China. Its headquarters is based in Beijing China within the Haidian District. In addition to search services, Baidu offers other essential services like tutorials for Chinese language, images, and audio files. In addition, Baidu provides community services and a collaborative encyclopedia built online also known as the Baidu Bike. Moreover, searchable words coming from discussion forum are available within the Baidu search engine (Peterson, Drake & Fabozzi 78). As a China, company operating in China, it has established a total of 56.6% of all the shares attributed to the 4.02 Billion search queries in China. However in terms of revenue from the search queries, Baidu registered 76% of all the revenue generated from search queries. It can provide up to 740 million web pages with images amounting to 80 million pages. Similarly, Baidu can produce 10 million multimedia files. Among the contented contained within Baidus multimedia are movies, MP3 music (Johnston, & Daniel). The main distinctive feature of Baidu is its ability to provide the use of mobile search applications, personal digital assistants (PDA) and Wireless Application Protocol. The Baidu Bile is a prototype of Wikipedia and offers encyclopedia information for the Chinese. However, it differs with Wikipedia in the sense that one has to be a registered user to make any substantive changes in the articles (Fridson, Martin & Alvarez 58). Being a chines company. Baidu enjoys a lot of support from the Chinese government with a lot of legislation being put in place to block external competitors like Wikipedia. The censorship. For instance, the Chinese government has interminably prevented certain content from being streamed into Wikipedia. Similarly, the Chinese government has filtered contents generated in China from getting into the domain of other internet applications with non-Chinese origin. The name Baidu was coined from a famous poem that narrated how one searched for a long time only succeed at the last stage. Company History Baidu Company was incorporated on the 18th day of January 200 by Robin Li and a colleague known as Eric Xu. The two Chinese by nationalist gained their knowledge in the information sector after working for quite a long time outside China. The company has since grown to become one of the most reputable companies in China. Moreover, the company has gained its entry into the NASDAQ security exchange where it is listed as a limited company. Similarly, the company appeared in the 4th position in the internet ranking done by Alexander. This was the significant achievement in the history of Baidu given the fact that the company was the first Chinese firm to be included in the NASDAQ-100 index. The early development of Baidu began in the year 1994 when Robin Li was involved in the IDD Information service that was a subsidiary of the Dow Jones Company. The most significant efforts towards the inception of Baidu into the market was the development of an online edition of the Wall Street journal in addition, Robin helped develop algorisms used in search engines that received a US patent for technology. It is this technology that was later used in the Baidu search engine. The first office of Baidu Company was located in a hotel room next to Peking University where Robin was a student. Later on in the year 2003, the company introduced the search engine for pictures and news using a unique technology of identifying and grouping various articles. Baidu began official operation in the year 200 and has since registered tremendous growth both in the employee base, revenue and market dominance in China. The transitions in its operation have seen the significant takeover of the social networking market and search engine advertisement leading to its monopolistic nature. Industry Baidu Company conducts its business within the information technology industry as dominate the chinas market. Initially before the entry of Baidu into the Information Technology industry, there were a lot of opportunities in the industry according to the brand and nature of services that were available to users. However, Baidu came into the technology industry with products that were appealing and attractive to internet users thus revolutionizing the information technology industry. This was facilitated by investment in technology research and profound learning technology in the products and apps that the company provides to internet users. The Phoenix Nest Platform is one of the greatest innovations in the Information Technology industry The industry has faced a number of threats and challenges that are hindering the continued growth of Baidu. This has prompted the company to seek patents for its copyright technologies. The DNA Copyright Recognition can scan any content uploaded by internet users, thus filtering any content that may violate the cyber laws of the Chinese government. The search technology that prioritizes site and the patents rights have enabled Baidu to survive any infringement of its rights in the industry. This has led to Baidu becoming the most restrictive and proactive Internet censor in the online search arena. The company has gone ahead and blocked several sites from its search engines. A number of blocked topics include pro-democracy and hate messages. Competitors The major competitors who struggle to get a share of the massive technology market Baidu is enjoying. Some of these competitors are multinationals with subsidiaries in China while others are purely Chinese. Among the major competitors that give Baidu a lot of challenges in the market are the Qhioo 360 search, Sogou search, Google China, Bing and MSN Messenger owned by Microsoft, Yahoo China, EcahNet, the Taobao created by Alibaba, TOM Online and Youdao. Similarly, Wikipedia, Tencents Soso.com and PaiPai are equally significant competitors of Baidu in the technology industry. Despite all these stiff competition, Baidu still manages to control a huge percentage of the search market amounting to 63 percent of the total revenue earned from search engines. This has been confirmed by the research firm based in China known as the iResearch and approved by the China Internet Network Information Center. Of great significance to its success against competition is the gained from the wall street journal article which left Google surprised and yearning in he loses. Even the revenue earned from advertisement relating to search increased to 705, showing a 6% rise from the previous quarter (Lee, Alice , John & Cheng 33). The company has survived the competition in the technology industry and has ventured into the market dominated by social networking. However, this will be conceptualized by the already existing Facebook in the industry. This is seen as Baidus strategy of facing off the other firms in the market like Kaixin, Renren, and Pengoyou.com, who are competing with Baidu. The anticipated launch of the messaging platform is also seen as a way of inducing rivalry with the TenCents messaging application (Bragg, & Wiley). In addition, the strategy employed by Baidu in the technology industry has helped Baidu remain the most profitable company with a total of 64.5 of the internet users in China. This did not resonate well with other competitors in the industry forcing Hudong to seek the redress from the Chinese administration of Commerce and industry. The main bone of contention was the emanating, monopolistic nature of Baidu in the Technology industry. The closest competitor to Baidu is Qihoo 360 with only 10.2% of Chinese internet users. Distant competitors are Google and Sogou, who do not have any significant influence on Baidus performance in the industry. However, with the rebranding of the search engine owned by Qihoo 360 to be known as haosou.com, Baidus stake reduced to 56.35 while that of Qihoo 360 rose to 29.0 in 2014. Qhioo 360 search, Sogou search, Google China, Bing and MSN Messenger owned by Microsoft, Yahoo China, EcahNet, the Taobao created by Alibaba, TOM Online and Youdao. Similarly, Wikipedia, Tencents Soso.com and PaiPai (Shim, Jae & Siegel 91). Stock Price Analysis Table 1: Analysis of the Price of Stock in the Closing Period. Company EPS Market Cap Net Income P/E Ratio Intl business as % of sales # of Employees Baidu $2.54 $160.35 B $7.2 B 18.1 40.0% 109,500 Qhioo 360 search $0.17 $272.67 B $1.49 B 17.5 41.0% 122,000 EcahNet $1.53 $61.17 B $1.88 B 26.7 30.1% 29,581 Taobao. $3.01 $104.54 B $1.62 B 15.6 n/a 63,200 * figures from nasdaq.com, finance.yahoo.com, and Value Line       Table 2: Baidu Company , S&P 500 Closing Prices: Date Baidu Company S&P 500 Closing Price Date Baidu Company S&P 500 Closing Price 23-March 50.52 1,132.17 2- Apr 51.39 1,129.44 24- March 51.05 1,141.80 3- Apr 52.60 1,128.17 25- March 51.52 1,150.57 6- Apr 54.52 1,128.84 26- March 51.48 1,148.16 7-Apr 54.13 1,134.61 29- March 51.38 1,140.53 8-Apr 53.92 1,135.82 30- March 50.87 1,139.32 9Apr 53.13 1,118.15 1- Apr 51.20 1,145.20 10-Apr 53.68 1,124.09 15-day S&P 500 Return: -0.00713 (-0.7%) 15-day Baidu Return: 0.06254 (6.3%) * figures from nasdaq.com, finance.yahoo.com, and Value Line Figure 1: graph of returns of Baidu and S&P 500 * figures from nasdaq.com, finance.yahoo.com, and Value Line Table 3: Daily Stock Price Summary Statistics Baidu Co. S&P 500 Return 0.48% -0.05% Standard Deviation 1.34% 0.73% Variance 0.000179 0.000053 Covariance 0.000034 Beta 0.63 Table 3 From the above table and graph, it can be noted that the movements of stocks of Baidu imitated that of S & P 500 until the 13th day of April however, the two data deviate from each other with the values of S 7 P 500 almost doubling that of Baidu. Under rear circumstances, there is a significant rise in the values of Baidu with a corresponding decrease in the values of S & p 500. This was experienced on 1st and 5th. However, for the rest of the days in the three weeks analyzing, the figures remained moderately correlated to each other. Similarly, the market summary of the three weeks period the earnings of Baidu was fairly good for the first quarter, unlike the third quarter. This must have been the main reason for the decrease in prices of the stock of Baidu. The decline in prices might signify the declining expectation of the stock of Baidu. Moreover, the changes registered in the rise and fall in the stock prices represent the interest the investors had in the stock. This can be seen from the figures obtained in the financial statements. The earnings and returns of Baidu show that the company was a stable Company making profits all over the trading period. The rate of growth were initially placed at a 6.5 % but were later established to be 6%. This strong economy was responsible for the fear in the investors. However with the effort from Baidu Company, the economy was fixed at the second quarter showing an improved investor perception. The 10th day of April saw both Baidu and S& P 500 take a sharp turn in financial performance. The result was an improvement in the earnings of Baidu adversely affecting the whole market. The computed rate of return on both the index and the stock prices over the three years has been computed and is available in the table below Compute the rate of return on both the index and your stock over the three weeks. Table 4: The Closing Prices Of The Index And Your Company’s Stock Price. Date UPS S&P500 Return on UPS Return on S&P500 1/3/2007 71.84 1416.6 1/4/2007 71.96 1418.34 0.001670379 0.001228293 1/5/2007 71.06 1409.71 -0.012506948 -0.006084578 1/8/2007 71.28 1412.84 0.003095975 0.002220315 1/9/2007 70.99 1412.11 -0.004068462 -0.00051669 1/10/2007 70.56 1414.85 -0.006057191 0.001940359 1/11/2007 70.58 1423.82 0.000283447 0.006339895 1/12/2007 71.33 1430.73 0.01062624 0.004853142 1/16/2007 71.76 1431.9 0.006028319 0.000817764 1/17/2007 71.87 1430.62 0.001532887 -0.000893917 1/18/2007 71.69 1426.37 -0.002504522 -0.00297074 1/19/2007 71.89 1430.5 0.002789789 0.002895462 1/22/2007 71.18 1422.95 -0.0098762 -0.005277875 1/23/2007 70.55 1427.99 -0.008850801 0.003541938 1/24/2007 71.34 1440.13 0.011197732 0.00850146 1/25/2007 70.54 1423.9 -0.011213905 -0.011269816 1/26/2007 69.47 1422.18 -0.015168699 -0.00120795 1/29/2007 70.58 1420.62 0.01597812 -0.001096908 1/30/2007 69.67 1428.82 -0.012893171 0.005772128 1/31/2007 69.27 1438.24 -0.005741352 0.006592853 Return -0.1878% 0.0810% Standard Deviation 0.008682683 0.004793576 Variance 7.5389E-05 2.29784E-05 Covariance 1.61887E-05 Beta 0.704519452 Risk and Return Analysis Comparison of Company βs, Safety Ratings and Analytical Recommendations Company β Safety Rating Average Analyst Recommendations Baidu Co. 0.7 1 2.5 Qhioo 360 search 0.85 1 1.9 EcahNet 0.9 2 2.5 Taobao. 0.9 1 2.1 Baidu Company risk and return analysis show a company that is still safe from any potential financial crisis. Since the year 2000, Baidu has continued operating and registering tremendous growth in its operations. The stability of Baidu Company has continued to improve with the dominance of 65.5 % of the IT industry in China. The company’s ability to provide unique products with high-end technology has put it ahead of the rest of the industry. Moreover, the company has diversified its products within the IT industry capturing the social and technological markets of the industry. While infringement of property rights is a potential threat to the survival of Baidu, the company has put in place measures to prevent such occurrences through patent and copyrights of its innovative products. This competitive advantage has made Baidu out-compete the others in the market like Qhioo 360, EcahNet and Taobao.. Company Estimated Return (%) Baidu Co. 60.05% Qhioo 360 search 20.85% EcahNet 10.09% Taobao. 9.01% An estimate of the expected returns from the five companies in the industry reveals that Baidu controls 65.2% of the revenue received from the advertisement and search engines. The next in the income gap is the Qhioo 360 search with 20.85 while EcahNet Come distant third at 10.09% of the total income e earned from the advertisement through search engines. Taobao has registered returns of 9.01% of the total revenue earned from search advertisement( Mayes & Todd 56). Conclusion Baidu is a stable and profitable company. It has successfully dominated the IT industry in China with a good strategy that has kept away its competitors. In addition, Baidu has continued to provide high-end innovations and technological apps and services to its customers. This has also contributed towards its increased competitive edge in the IT industry. It is continued growth is not questionable, and no serious investor will doubt it. It is the best alternative for any investor who seeks to acquire good returns in a short period. Thus, it is recommended that the stocks of Baidu are the best for an investment in the long-term as a supplement to other investment portfolio existing in the market. Its resilient features make it an attractive and admirable investment for all classes of people in the economy since it is fairly valued and bear a god potential of growth. Table 1. Historical Returns and Equity Premiums, 1802–September 2001 Note: Comp. = compound; Arith. = arithmetic. Table 1. Historical Returns and Equity Premiums, 1802– September 2001 Real Return Stock Excess Return over Comp. Arith. Comp. Arith. Period Stocks Comp. Arith. Bonds Bills Comp. Arith. Co mp. Arith. 1802–2001 1871–2001 6.8% 6.8 8.4% 8.5 3.5% 2.8 3.9% 3.2 2.9% 1.7 3.1% 3.4% 4.5% 3.9% 5.3% 1.8 3.9 5.3 5.0 6.6 Major subperiods 1802–1870 1871–1925 1926–2001 7.0% 6.6 6.9 8.3% 7.9 8.9 4.8% 3.7 2.2 5.1% 3.9 2.7 5.1% 3.2 0.7 5.4% 2.2% 3.2% 1.9% 2.9% 3.3 2.9 4.0 3.5 4.7 0.8 4.7 6.2 6.1 8.0 Post World War II 1946–2001 1946–1965 1966–1981 1982–1999 1982–2001 7.0% 10.0 –0.4 13.6 10.2 8.5% 11.4 1.4 14.3 11.2 1.3% –1.2 –4.2 8.4 8.5 1.9% –1.0 –3.9 9.3 9.4 – – 0.6% 0.8 0.2 2.9 2.8 0.7% 5.7% 6.6% 6.4% 7.8% –0.7 11.2 12.3 10.9 12.1 –0.1 3.8 5.2 –0.2 1.5 2.9 5.2 5.0 10.7 11.4 2.8 1.7 1.9 7.4 8.4 Note: Comp. = compound; Arith. = arithmetic. Sources: Data for 1802–1871 are from Schwert (1990); data for 1871–19 capitalization-weighted indexes of all NYSE, Amex, and Nasdaq stocks. Da 25 are from Cowles (1938); data for 1926–2001 are from the CRSP ta through 2001 can be found in Siegel (2002). Sources: Data for 1802–1871 are from Schwert (1990); data for 1871–1925 are from Cowles (1938); data for 1926–2001 are from the CRSP capitalization-weighted indexes of all NYSE, Amex, and Nasdaq stocks. Table 2. Historical Growth Rates, 1871–Septem ber 2001 Real Inverse of Stock Average Average Ea Period Return P/E P/E Gr Real Real Real Average rnings Dividend Dividend Capital Payout owth Yield Growth Gains Ratio 1871–2001 7.06% 14.45 6.92% 1871–1945 6.81 13.83 7.23 1946–2001 7.38 15.30 6.54 1.27% 0.66 2.08 4.66% 1.09% 2.17% 62.24% 5.31 0.74 1.32 70.81 3.78 1.57 3.32 50.75 Reffrences. Mayes, Timothy R, and Todd M. Shank. Financial Analysis with Microsoft Excel. Australia: South-Western, 2012. Print. Shim, Jae K, and Joel G. Siegel. Handbook of Financial Analysis, Forecasting, and Modeling. Chicago, IL: Wolters Kluwer/CCH, 2007. Print. Bragg, Steven M. Financial Analysis: A Controllers Guide. Hoboken, N.J: Wiley, 2013. Internet resource. Peterson, Drake P, and Frank J. Fabozzi. Analysis of Financial Statements. , 2012. Print. Johnston, David C, and Daniel Johnston. Introduction to Oil Company Financial Analysis. Tulsa, Okla: PennWell, 2006. Print. Fridson, Martin S, and Fernando Alvarez. Financial Statement Analysis: A Practitioners Guide, Fourth Edition. Hoboken, N.J: John Wiley & Sons, 2011. Internet resource. Lee, Alice C, John C. Lee, and Cheng F. Lee. Financial Analysis, Planning & Forecasting: Theory and Application. Singapore: World Scientific, 2009. Print. Read More