Tech giants flush with cash taking on debt is no longer a rare sight, so there's no point in bellyaching about Baidu (NASDAQ:BIDU) proposing to sell senior notes. Does China's leading search engine need the money? No. It has nearly $6.4 billion in cash, and that's after going on a shopping spree over the past two years to become a dominant force in everything from mobile apps to online video.
However, sometimes it doesn't hurt to rub elbows with underwriters as you raise some more money for "general corporate purposes." The move could also signal a push to increase its presence outside of China. Moody's -- in assigning a healthy A3 rating to the proposed unsecured notes and sticking to a stable ratings outlook -- seems to suggest that as a possible scenario.
"While Baidu has sufficient cash to fund its operations and potential acquisitions, it is more tax efficient for Baidu to raise offshore funding through the notes issuance to fund offshore payments for its acquisitions," notes the Moody's report.
This doesn't mean Baidu is about to start snapping up stateside dot-com darlings. We don't even know the actual amount Baidu is raising, here. However, it wouldn't be a surprise to see the company continue to diversify away from search in China.
Qihoo 360 (UNKNOWN:QIHU.DL) has come out of nowhere to command roughly a quarter of China's search queries. That's a pretty bold jump for a platform that didn't even exist at this time two years ago. It remains to be seen if Qihoo 360 can keep growing its share, or if it can even sustain what it has garnered once it begins to effectively monetize that traffic.
Baidu hasn't had much of a problem growing in light of Qihoo 360's presence on its turf. Revenue growth is soaring, accelerating to a 59% spurt in Baidu's first quarter. Its marketing customers are spending 44% more on Baidu than they were a year ago, so it's not as if having a pesky rival around is freezing advertisers. However, just as Baidu has diversified within China by taking a bigger role in online travel, streaming video, and mobile marketplaces, it probably doesn't hurt to have some more skin outside of the world's most populous nation.
Chinese Internet stocks often trade at a discount to their growth because the geopolitical risk is baked into the price. If Baidu can help build a global empire of online properties, it will make it that much easier to justify the stock as an investment to folks concerned about pure plays on China's Internet revolution.
So, there's no bellyaching, here -- unless Baidu simply sits on this money that it will be paying interest on for too long.