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Brendan Byrnes: Hey Fools, I'm Brendan Byrnes and I'm joined today by Andrew Tonner, our tech and telecom analyst for Fool.com.
Andrew, let's talk Baidu, a really interesting Chinese search giant. Looking around the same multiple as Google, as you just mentioned to me. Let's talk a little bit about Baidu and how you see its prospects, going forward.
Andrew Tonner: Right. Looking at Baidu, I think the investment thesis actually is very, very simple. Right now I think the No. 1 reason to buy the company is just valuation. It's a cheap, cheap stock and, as you alluded to, we talked about previously, they're really trading at basically the same price to earnings multiple as Google.
When you compare the businesses right now, Baidu's road map for growth and its growth potential far, far outstrips Google, which is not a mature company; Google can still grow, I think, in the 20-30% revenue growth range, but that's limited, at least somewhat.
When you look at some of the numbers as far as the tailwinds for Baidu, they're truly staggering. Estimates vary, but Internet penetration, they say, is roughly between 40%-50%, so to reach the levels of the domestic market Internet use would roughly have to double.
No one's more poised to benefit from that trend than Baidu. They're the number one search player, with at least two-thirds of Chinese market share, and at the same time they're being very proactive in things like mobile as well.
Now, the company is under threat, facing increased competition. The Qihoo 360 moving into search is one of the most popular storylines, and a bear case for Baidu, but at the same time I think some of those are overblown. We're not seeing the market share erosion that analysts and people who were really panicked when this news point first came out. It's just not the case.
Search is somewhat of a self-reinforcing business and, as Internet penetration rises, as I alluded to further, the back-end advertising spending that's going to come along with that, which is really just a drop in the bucket of its overall potential right now, is again going to be a huge, huge benefit for Baidu's monetization as well.
That's not to say there aren't risks for the stock as well. Mobile, for all search players, is definitely a risk and we'll probably talk about that a little bit later today, but at the same time I think even if you look at the potential drag from, say, mobile not monetizing as well or something like that, it's sort of missing the point that Baidu's overall opportunity is just so great.
At around a 20X multiple, there's still a lot of growth and a lot of profitability out there for investors to get today, and it's, again, a very cheap stock. Highly profitable business, well-managed, lots of insider holding.
There's plenty to like with this company. I think it's one of my best tech buys for 2013.
Brendan: Yeah, I totally agree and that's why I'm a shareholder right now.
Andrew: Same here.
Brendan: Thank you for reinforcing that, Andrew. Thanks for watching, folks. Head over to Fool.com for more analysis.
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