Oaktree Capital Initiates a Stake in Baidu



Oaktree Capital’s holdings in Baidu

Oaktree Capital started a new stake in Baidu (BIDU) with the purchase of 138,429 shares in the company. BIDU accounted for 0.34% of the fund’s 4Q14 portfolio.

Baidu is a 7.45 % part of the KraneShares CSI China Internet ETF (KWEB). BIDU is also a 1.3% component of the PowerShares QQQ Trust, Series 1 (QQQ).

Oaktree Capital’s top three positions are Apple (AAPL), Microsoft (MSFT), and Google (GOOGL), which have respective portfolio weightings of 15.41%, 7.19%, and 3.57%. For exposure to technology stocks, investors could consider the iShares Global Tech ETF (IXN).

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Overview of Baidu

Visionary Robin Li co-founded Baidu with Eric Xu in 2000. The company’s name comes from a thirteenth-century Chinese poem. Its literal translation is “hundreds of times.”

BIDU generates revenues of about $8 billion. With a 80% market share, the company leads China’s Internet search market.

Baidu caters to individuals who search for information on the Internet. The company also addresses the needs of businesses by providing them with a platform to reach out to potential end users.

Partership with real estate giant SOHO

SOHO China, a real estate giant, is likely to forge a partnership with Baidu to sell homes on an online platform. If the partnership materializes, it would be the first major strategic alliance between an Internet company and a real estate firm. According to Pan Shiyi, Chairman of SOHO, greater value would result from a cooperative agreement between the real estate firm and the Internet sector.

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Strategic partnership with NVIDIA

In January 2015, Baidu’s operating subsidiary, iQIYI, established a strategic alliance with NVIDIA (NVDA) to launch a research and development center. The center is intended to leverage NVIDIA’s graphic processing expertise and iQIYI’s learning and media cloud computing capabilities to develop an enhanced viewing experience for Chinese users.

Fourth-quarter revenue growth

Baidu’s revenues increased by 47.5% year-over-year to $2.3 billion in 4Q14. Increased traffic and higher revenue per online customer drove this growth. The company’s active online marketing customer base was up 16%, reaching 523,000 in 4Q14. Revenue per online marketing customer was up 26.3% over the same period.

The top line growth didn’t translate into a corresponding increase in operating earnings. Baidu’s operating profit rose by only 7.8% year-over-year to $475.8 million, primarily due to higher traffic acquisition costs.

Revised outlook from Moody’s

Credit rating agency Moody’s revised its outlook for BIDU to “positive” from “stable.” Lina Choi, a Moody’s vice president and senior analyst, said, “the positive outlook reflects Baidu’s increased cash flow and strong revenue growth, which has exceeded our expectations, and the rises in both categories were mainly driven by robust mobile traffic and the higher number of advertisers using Baidu’s keyword search platform.”

In the next part of this series, we’ll look at Oaktree Capital’s new position in Store Capital (STOR).


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