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Appaloosa Management's positions in 4Q 2013

Part 5
Appaloosa Management's positions in 4Q 2013 (Part 5 of 8)

Must know: Why did Appaloosa buy a stake in Baidu?

Baidu (BIDU) is a 0.46% position in Appaloosa’s ~$7 billion U.S. long portfolio.

BIDUEnlarge GraphBaidu, the largest search engine in China, is expected to post its 4Q results on February 26. Chinese internet companies’ shares tumbled on an SEC ruling last month that barred the Chinese units of the Big Four accounting firms—KPMG, Deloitte, PwC, and Ernst & Young—from auditing U.S.-listed companies for six months. The ruling followed the failure of these accounting firms’ units in China to comply with SEC orders for documents needed for investigating some accounting frauds. However, the stocks rebounded as concerns have dimmed about the trading suspension of these stocks. The Big Four said they will jointly appeal against the ruling while China Securities Regulatory Commission (CSRC) warned of “consequences.” A Morgan Stanley analyst said the pullback in China ADRs offers a buying opportunity, mentioning Baidu as one of the stocks.

BIDUHEnlarge Graph

Baidu, which is also dubbed as the “Google of China” reported strong results in the third quarter as revenue remained on a solid growth trajectory although its outlook was considered to be modest. The company generates most of its revenue from search advertising. Mobile search revenues in particular saw an increase in 3Q. The company is stepping up efforts to expand into the mobile search and software applications segment. With the acquisition of online video business of PPS, 91 Wireless last year and Renren’s remaining stake in Nuomi last month, Baidu has strengthened its mobile native app distribution capabilities.

In terms of guidance, the company expects total revenues for the fourth quarter to be between $1.51 billion and $1.55 billion, representing a 45.5%-to-49.6% year-over-year increase. Analysts are bullish about the stock, which was up almost 77% last year.

According to CNZZ, Baidu’s search engine market share by volume accounted for 63.1% in December 2013. However, the company is losing market share to rivals Qihoo 360 (QIHU) and Sogou, in which Tencent has a 36.5% stake.

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