Coatue Management and Baidu Inc.
In 3Q14, Coatue Management added to its position in Baidu Inc. (BIDU). The stock accounted for 8.19% of the fund’s portfolio for the quarter, which ended in September.
Overview of Baidu
Baidu Inc. is the leading Chinese-language Internet search provider. The technology-based media company serves individual Internet users and provides an effective platform for businesses to reach potential customers.
The company offers a number of services:
- search engine for websites
- audio file search
- image search
- Baidu Browser
- Baidu Baiku, a wiki encyclopedia
- Baidu Tieba, a keyword discussion forum
According to the Internet analytics firm Alexa.com, Baidu is the largest website in China and the fifth-largest website in the world. Alexa based its calculations on average daily visitors and page views during a three-month period that ended on December 31, 2013.
In 2013, Baidu captured 81.6% of China’s Internet search traffic according to the market research firm iResearch Consulting Group. People often refer to Baidu as China’s Google.
Mobile traffic drives top-line growth
For 3Q14, Baidu reported total revenues of $2.203 billion, which beat the estimates. That’s a 53% increase from the corresponding period in 2013. Online marketing revenues for 3Q14 were $2.188 billion, a 51.8% increase from the same period in 2013.
Net income attributable to Baidu was $631.5 million, a 27.2% increase from 3Q13.
Baidu had about 516,000 active online marketing customers in 3Q14. The traffic acquisition cost was $283.8 million. This represented 12.9% of total revenues compared to 11.7% in the same period in 2013. The growth was due to the increased contribution of contextual ads, mobile traffic, and the promotion of Baidu’s website directory Hao123.
Management reported, “We had another very strong quarter as we continued to leverage our tremendous assets, especially in mobile. This quarter, mobile traffic surpassed PC traffic and mobile revenue contributed 36% of our total revenue. We are particularly pleased with the progress we have made in connecting people with services through innovative O2O initiatives like Baidu Connect—a better way for businesses to connect with their targeted consumers on mobile devices. It’s an exciting time for Baidu. The O2O market opportunity is enormous, and our leading positions in mobile search and maps, as well as our extensive sales force, position us optimally to capture that opportunity.”
Baidu buys Brazilian e-commerce company
According to iResearch, Baidu bought a controlling interest in Peixe Urbano, the largest e-commerce company in Brazil. The purchase will help Baidu expand in a country where consulting firms like A.T. Kearney say that the e-commerce market could be seeing average annual growth of 18% by 2016.
Baidu management said, “International expansion is a priority for Baidu and, under this strategy, Brazil is a key market where over 50 million people already use our services every day.”
LightInTheBox forms strategic alliance with Baidu
On November 13, 2014, LightInTheBox announced that it had partnered with Baidu Dianxin to develop international mobile markets. An online retailer, LightInTheBox delivers products directly to consumers around the world. Baidu Dianxin, a leading global mobile app provider, is a fully owned subsidiary of Baidu.
The deal will allow LightInTheBox to market its products and apps to international consumers through Baidu’s search engine, thus providing a broader audience to the retailer. Also, the agreement will help the Internet giant to monetize its apps. LightInTheBox will pay to advertise on Baidu’s apps. Given the popularity of Baidu Dianxin’s apps, there is a huge potential market for the Chinese online retailer.
Shares for LightInTheBox rallied more than 9% after the announcement, while Baidu’s shares went up by 1%.
Other 3Q14 positions for Coatue
Coatue Management’s third-quarter 13F filing revealed new positions in Level 3 Communications Inc. (LVLT) and Zillow Inc. (Z). The fund sold its positions in Salesforce.com Inc. (CRM), 21Vianet Group Inc. (VNET), and Lululemon Athletica (LULU). Coatue also added to its positions in LinkedIn Corp. (LNKD), eBay Inc. (EBAY), and Facebook Inc. (FB). The fund reduced its stakes in Charter Communications (CHTR), Liberty Global plc (LBTYA), and CBS Corp. (CBS).
The next article in this series will highlight the fund’s increased position in eBay Inc.