http://seekingalpha.com/instablog/25341813-seekingtruthforever/2823473-bidu-on-the-brinkBIDU: On The Brink
Apr 9, 2014 10:23 AM | about stocks: BIDU
As the Apple co-founder Steve Wozniak said, Microsoft has had a lack of really great, new surprises and it's been resting on its laurels, and that's pretty dangerous. BIDU is also in such dangerous position, resting on the market it built long time ago.
Founded in January 2000, BIDU launched Internet search services on Baidu.com website and began generating revenues from P4P services in September 2001. The P4P services enable BIDU customers to bid for priority placement of their links in keyword search results.
BIDU is said to be the stock to buy because of its leading position in the Chinese internet search market. After BIDU reported strong fourth-quarter results late-February, some analysts have upgraded BIDU's stock from hold to buy. However, they all overlooked the story behind the strong growth, and the high growth rate is unsustainable.
We rates BIDU shares a Strong Sell because of its significantly deviated customer structure in the search engine market, its lack of organic growth in the mobile field, the integration mess after acquisitions, and slow response to mobile market.
First, we would like to draw the attention to the core business - P4P services. In 2013 BIDU's online marketing revenue increased by 43.2% yoy to RMB31.8 billion. The revenue is not a fraud. However, 50% of revenue derived from medical care & non-enterprise customers, and the 43.2% growth was at the cost of draining its distributors' money. In order to live up to the expectations of Wall Street, BIDU keeps pressuring distributors for almost impossible sales target. Under such circumstances, its high growth would not be sustainable, and hurting its own distributors would create a return stroke someday.
Second, BIDU exaggerated its mobile revenue to make investors buy in its story of a bright mobile future.
Last but not last, Every one is looking to close gaps in their business models and acquisitions remain the most used channel, and BIDU just moved and responded quite slowly in the mobile ecosystem that is already influenced by big rivals like Tencent and Alibaba.
About this Report
We initially became concerned about the company because of its termination of collaboration with one its largest distributors.
Our research process was exhaustive, and included reading and analyzing conference call transcripts, SEC filings and press releases. In addition, we conducted extensive fieldwork and spoke with a variety of industry experts/sources.
The source inquiries were conducted in strict confidentiality and therefore the materials and contents provided in this report must be treated confidentially. Please also note that despite our best efforts to deliver factual and accurate information reporting, results and interpretations of human sources are subjective in nature and the client should take this into account when reviewing our product.
Executive Summary
Approximately RMB16 billion revenues, which accounted for 50% of BIDU's total online marketing revenue, are contributed by medical care and "non-enterprise" customers, and the high increase predominantly derived from the medical care & "non-enterprise" customers. Revenue from medical sector is about RMB10 billion, and the rest RMB6 billion is due to the "non-enterprise" customers.
Non-enterprise is a jargon in the industry. Some industry insiders define non-enterprises by the feature of high discount rates (higher than the rebate rate distributors received from BIDU), and high discount rates means BIDU distributors lose money to keep the non-enterprise customers in; Other industry insiders called the customers who operate illegal or unauthorized business "non-enterprise". If any complaints filed with BIDU about the illegal or fraud websites, the corresponding distributors assumed the responsibility. In fact there are very limited technical operations distributors can make from their end, and BIDU is quite sensitive about blocking any key words because they do not want to recklessly kill any customers.
Why did medical care and non-enterprise customers account for half of the pie? Because a) BIDU is genuinely the only marketing channel for medical care and non-enterprise customers. b) Medical care and non-enterprise customers have relatively high gross margins comparing to manufacturers, and the CPC (cost per click) is high as well, ranging from RMB30 to RMB200. Private medical care has a relatively high growth rate compared to other industries. c) The nature of health care in China, severe information asymmetry between citizens and health care institutions, is an important reason. People are coy about certain diseases as gynecopathy and venereal disease, and search for help online might be a comfortable way for some people. Unlike in China, the key words with high CPC in the US are usually related to mortgage or attorney. d) The conversion rate of BIDU is so far satisfying for the customers. e) Other search engine market players like QIHOO do not launch medical care services.
The reason why non-enterprise took up 20% revenue is mainly because the sales growth target set by BIDU for each distributor on a quarterly basis has been rising unreasonably. Once the sales growth from renewal customers stagnated and it became hard to find new customers, the gap between actual sales and target has been bigger and bigger by the end of each quarter, and the distributors figured some way out, which is to place more and more non-enterprise customers. Increasing non-enterprise customers means losing more money on these customers, probably resulting in a very low profit or even an overall loss. Still the distributors keep doing it as long as they want to maintain the cooperation with BIDU, and also the distributors want to leverage the large amount of cash flow to make other investments.
Industry insiders described this mechanism as a drug addiction: distributors compulsively and repetitively use non-enterprise customers despite low profit and risks related to use of non-enterprise customers, and the only difference is that if some distributors stop use of non-enterprise, they may have to pull the business out because they fail the target.
BIDU realized an overall 43.2% growth in 2013. To some extent, the 43.2% is not a natural growth driven by demands, but by consuming the fuel of distributors. And the customer structure is quite unstable and unbalanced in the long run. A great number of private hospitals are attached to military hospitals, and if the government plans to regulate military hospitals, those private hospitals would be first impacted. Forbidding illegal customers is more of a moral obligation, since there is no particular rule on online advertising so far. In case of any changes in health care regulations or new rules on internet ads come out, BIDU is subject to adverse effect.
As is the case with 2013, the growth in 2014 would lie on the rise of medical care and non-enterprise revenue. In 2014 though customers would raise their marketing budgets, with the rise of BIDU's charges for P4P services some customers are close to reach their break-even margin and lack incentives to increase spending on BIDU.
At last year's distributor meeting, BIDU set the annual growth target in 2014 at 50%. As is the case with 2013, the growth in 2014 would lie on the rise of medical care and non-enterprise revenue. In 2014 though customers would raise their marketing budgets, with the rise of BIDU's charges for P4P services some customers are close to reach their break-even margin and lack incentives to increase spending on BIDU. Moreover, even with new players such as Fosun Pharmaceutical entering the market, it is hardly enough. Therefore, 50% growth is a mission impossible. Therefore, 50% growth is a mission impossible. Even if by all means BIDU realize a 50% growth this year, this rate would not be sustainable the next year because the money loss would be unaffordable for distributors.
BIDU intentionally inflated its mobile revenue. BIDU PC search customers are mandated to open mobile account, and CPC for mobile is much cheaper, 10%-20% of the PC CPC. As of Q4 2013, mobile traffic only accounted for 40%. Mobile traffic Vs PC traffic is 4:6 while mobile CPC Vs PC CPC is 15:100, and then mobile search roughly accounted for 9% of the total revenue. The ratio may not be that precise, but the stated 20% is quite far from 9%.
1. Deviated Customer Structure
BIDU reported total revenue of RMB31.944 billion in year 2013, a 43.2% increase from RMB22.3 billion in 2012; and its online marketing revenue from online advertising increased by 43.2% from RMB22.2 billion in 2012 to RMB31.8 billion in 2013. This increase was attributable to the increase in the number of BIDU's active online marketing customers and the increase in the average revenue per customer.
However, BIDU forgot to mention that, approximately RMB16 billion revenues, which accounted for 50% of the total online marketing revenue, are contributed by medical care and "non-enterprise" customers, and the high increase predominantly came from the customers of medical care & "non-enterprise" customers. Revenue from medical industry is about RMB10 billion, and the rest RMB6 billion is due to the "non-enterprise" customers.
2013
Customer
Revenue (RMB in thousands)
Medical care
10,000,000
Non-enterprise
6,000,000
Others
15,800,000
Total
31,800,000
1.1 What Are Non-Enterprise Customers?
Non-enterprise is an extensively used expression or jargon in the industry, and some industry insiders define non-enterprises by the feature that high discount rates usually accompany non-enterprise customers, and high discount rates means BIDU distributors lose money to keep the non-enterprise customers in. For example, regular customers can get 0%-10% discount, while non-enterprise customers can get 20%-50% discounting.
The rebate rate distributors received from BIDU has been declining over the past five years. In 2013 the rebate rate was 25%-28%. When distributors gave out high discounts to a great proportion of their customers, they earned very little money and sometimes even suffered loss.
Other industry insiders called the customers who operate illegal or unauthorized business "non-enterprise".
Theoretically when a new customer account with BIDU needs to be opened, the customer is required to provide documentations such as AIC registration and business license, and BIDU would review and give approval if required files are provided. Private hospitals in China have to go through a prolonged and somewhat complex process in order to obtain certain medical licenses.
Non-enterprise customers are able to create an account at BIDU with just a personal identity card. Non-enterprise customers are sly: they can change their website content any time. For example, one day the website sells clothes, and it becomes a gambling site over night. Plenty of unlicensed private hospitals have been customers of BIDU, and we still find BIDU customers using websites of BIDU or BIDU Union members for unlicensed online game, fraud, gambling, pornography and illegal sales of prescription drugs, etc.
Some users of BIDU simply believed a website when they saw the letter "V" shown to the right side of the website, which means the website was reviewed & approved by BIDU; some even suffered big money loss, and please see an example below. Further, if any complaints filed with BIDU about the illegal or fraud websites, the corresponding distributors assumed the responsibility. In fact there are very limited technical operations distributors can make from their end, and BIDU is quite sensitive about blocking any key words because they do not want to recklessly kill any customers.
In addition, cross-region sale is a small part of "non-enterprise". BIDU has a clear territorial restriction in its distributor policy, but some distributors were pushed get more customers by all means under the pressure that they have to reach the sales target set by BIDU or they would be penalized big money. And the incentive that drives the customers to shop around cross regions is that they are able to obtain high discounts.
An example of non-enterprise customers
A resident in Changsha City, Hunan Province, was cheated out of RMB400,000 on a fraudulent gambling website. The victim searched "bet365体育直播" and got the following search results,
(click to enlarge)
Source: Changsha Notary Office
He simply believed the "V" because he believed what BIDU said about its "guarantee plan".
Then the victim clicked into the gambling website "V"ed by BIDU, and the victim was instructed to transfer the money to the fraudster account. And the fraudster was supposed to be reviewed by BIDU, and here is the fraudster information.
Source: Changsha Notary Office
After the victim filed a complaint with BIDU, the website just evaporated like it never existed, and BIDU has prevaricated over its guarantee policy and refused to compensate the victim. Currently the victim is in the process of suing against BIDU in Haidian District Court.
1.2 Why did Medical Care and Non-Enterprise Customers Account for half of BIDU Revenue?
The reason is that,
1). BIDU is genuinely the only marketing channel for medical care and non-enterprise customers. As stated above, due to the advertising law and health care regulations, channels such as TV, magazine or newspaper, are not easily accessible for private hospitals and non-enterprise customers.
2). Medical care and non-enterprise customers have relatively high gross margins comparing to manufacturers, and the CPC (cost per click) is high as well, ranging from RMB30 to RMB200. Further, private medical care has a relatively high growth rate compared to other industries.
3). The nature of health care in China, severe information asymmetry between citizens and health care institutions, is an important reason. People are coy about certain diseases such as gynecopathy and venereal disease, and search for help online might be a comfortable way for some people. Unlike in China, the key words with high CPC in the US are usually related to mortgage or legal service.
4). BIDU online advertising is a direct and effective way for medical care and non-enterprise customers, who can exactly locate target users by setting varied key words on BIDU. In other words, the conversion rate of BIDU is satisfying for the customers.
5). Other search engine market players like QIHOO do not launch medical care services. Competitors like Sogou.com have also heavily relied on medical care and non-enterprise customers.
1.2.1 Primary Customers-Medical Care
With Chinese government loosening grip on investments in private health care institutions, private hospitals arose and the number grows. Strained by the Advertisement Law and relative medical regulations in China, private hospitals have restrictions on advertising scripts and marketing channels. For most private hospitals, TV or magazine promotion is not allowed; and online advertising is an accessible and effective way. Since BIDU search engine has the largest market share in China in terms of traffic and revenue, more private hospitals choose to market on BIDU, including the hospitals belong to the "Putian Xi" (Please refer to Section5.2 for more detailed information). The revenues BIDU received from medical care customers have been increasing quickly over the past years and hiked to RMB 10 billion in 2013. (Please note that here we are talking about qualified customers/hospitals that have medical authorization and license.)
In Fujian Province, revenue from healthcare sector accounted for 70% in 2013. In tier one cities, Beijing, Shanghai, and Guangzhou, where BIDU has its own sales force, the healthcare & non-enterprise revenue accounted for nearly 70%. In Tianjin City, healthcare & non-enterprise accounted for 40%. In regions like Inner Mongolia, only 10% of the revenue came from medical care.
Apart from medical care sector, "non-enterprise" is the other significant factor that BIDU realized a 43.2% growth year over year.
1.2.2 Why did Non-Enterprise Customers Become Significant?
Non-enterprise came to existence shortly after BIDU website was launched. Back then non-enterprise customers are not that many, and the revenue contribution was very limited.
The sales growth target set by BIDU for each distributor on a quarterly basis has been rising unreasonably. Once the sales growth from renewal customers stagnated and it became hard to find new customers, the gap between actual sales and target has been bigger and bigger by the end of each quarter, and the distributors figured some way out, which is to place more and more non-enterprise customers. Increasing non-enterprise customers means losing more money on these customers, probably resulting in a very low profit or even an overall loss. Still the distributors keep doing it as long as they want to maintain the cooperation with BIDU, and another reason is that the distributors want to leverage the large amount of cash flow to make other investments.
Industry insiders described this mechanism as a drug addiction: distributors persist in compulsive and repetitive use of non-enterprise customers despite profit loss and risks related to use of non-enterprise customers, and the only difference is that if some distributors stop use of non-enterprise, they may have to pull the business out because they fail the target.
For some regional distributors who have collaborated with BIDU since the early stage, non-enterprise customers contributed 20%-40% of their revenue, and it is unlikely to ask them to get rid of these customers unless they are willing to quit the business. In some tier three or tier four cities, non-enterprise customers accounted for 80% of the local revenue. Till 2013, the percentage of the revenue from non-enterprise customers at BIDU has been up to 20%.
Regulation Risks
The health care industry in China realized an 18% increase in 2013. Relying on medical care & non-enterprise customers, BIDU reached an overall 43.2% growth in 2013. To some extent, the 43.2% is not a natural growth driven by demands, but by consuming the fuel of distributors. This kind of growth line appeared to be pleasant, but actually seriously deviated, and the structure is quite unstable in the long run.
A great number of private hospitals are attached to military hospitals, and if the government plans to regulate military hospitals, those private hospitals would be first impacted. Forbidding illegal customers is more of a moral obligation, since there is no particular rule on online advertising so far. In case of any changes in health care regulations or new rules on internet ads come out, BIDU is subject to adverse effect.
BIDU and Robin Li are fully aware of the situation with current customers, but they did nothing about it, because otherwise, they would not have such a top-line growth and not be able to live up to the expectation of Wall Street investors. BIDU expects further acceleration in top-line in Q1 2014. The company has provided guidance for revenue growth in the range of approximately 55% to 60%. At last year's distributor meeting, BIDU set the annual growth target in 2014 at 50%.
2. 50% Growth Is Mission Impossible
As is the case with 2013, the growth in 2014 would lie on the rise of medical care and non-enterprise revenue. In 2014 though customers would raise their marketing budgets, with the rise of BIDU's charges for P4P services some customers are close to reach their break-even margin and lack incentives to increase spending on BIDU. For example, it cost a hospital RMB 300 for an incoming call from a potential patient and RMB1200 for an actual patient, and the average spending per patient at the hospital is RMB 2000; the hospital only has a 60% occupancy and it hopes for more patients to fill in those vacancies; while the cost per patient rises, the hospital would make less money and hence not spend more on BIDU. Moreover, even with new market players such as Fosun Pharmaceutical entering the market, it is hardly enough to realize a 50% growth. Therefore, 50% growth is a mission impossible.
Analysts are positive on the sustainable growth prospects of China's health care sector, and expected a growth potential of 15%-20% in 2014. BIDU distributors with 70% medical care customers said that, 30% growth is an optimistic prediction, and it is impossible for them to reach a 50% growth in sales this year unless they are willing to lose money on non-enterprise customers.
Even if by all means BIDU realize a 50% growth this year, this rate would not be sustainable the next year because the money loss would be unaffordable for distributors.
2.1 Profit Squeeze Hits Distributors and Customers
Distributors
Partly due to the large, fragmented and less sophisticated SME (small & medium-sized enterprise) customer base, BIDU relies heavily on distributors to acquire customers, collect payments and provided customer service. BIDU key distributors are restricted from selling similar products offered by its competitors during the contractual period.
BIDU has transitioned to using direct sales force to serve P4P customers in some key geographic markets, such as Beijing, Shanghai and major cities in Guangdong Province. Sometimes, direct sales force offered very high discounts to customers, and distributors need to compete with them for customers.
Currently the distributors are in a dilemma. They choose to either stop cooperation with BIDU or earn little profits sometimes even lose money.
On the one hand, BIDU has been gradually lowering the rebate rate for all distributors since five years ago while the operating costs and expenses of distributors build up. The rebate rate varies by distributors. In 2008, the rebate rates were 45%-50%, but down to 25%-28% in 2013. The Tianjin distributor said their profit margins dropped by 3% as the rebate rate decreased by 1% under the hypothesis that other factor did not change.
On the other hand, the sales goal set by BIDU has been increasing quarter by quarter. Even though some distributors tried to communicate to BIDU that the goals are unpractical and difficult to hit, their negotiations did not work at all. BIDU transfers pressure and forces distributors to shoulder the growth responsibility. Distributors have to reach the target anyways, and if not, they would be penalized a great deal of money, seven figures for large distributors, or be forced to terminate the collaboration with BIDU. In order to meet the growth target, by the end of each quarter, lots of distributors lined up non-enterprise customers and offered them big discounts, ranging from 20%-50%. When non-enterprise customers cumulated, a distributor would reach its break-even point or even lose money.
The conditions have been harsh on distributors, especially those whose have a small quantity of medical care customers. Some chose to leave BIDU, including PANASIA, one of the largest distributors, and another big distributor in Hangzhou City, Zhejiang Province; some waits and see; some stay because they did not count on earning money from BIDU, instead they took a fancy to the large cash flow, with which the distributors gained local government support and conducted other businesses, for example, the revenue from BIDU accounted for 70% of a distributor's total revenue, while the profits accounted for only 2%.
It is indicated that, BIDU did not care much about distributors earning no profit or suffer loss, and the ultimate intention of Robin Li is to dissolve all distributors as Google did. Nevertheless, there is no assurance that the google model would be successful with BIDU. With distributors gone, BIDU may lose customers during the transition and its results of operations may be materially and adversely affected.
Case Study：Why did PANASIA "Run Away"?
PANASIA Information Technology Co Ltd was incorporated in June 2003 in Wuxi City, Jiangsu Province. PANASIA became a distributor of BIDU in May 2004. At that time, people did not have much knowledge about search engine P4P services, and PANASIA even sent salespeople to look for customers on the streets, and the CPC was around RMB0.1. The business rose quickly in 2007, and at the end of 2007 PANASIA started to make profits after consistent loss; in 2007 the average CPC is RMB0.3. In 2007, PANASIA launched business in Xuzhou City and Lianyungang City, Jiangsu Province.
It was a boost period between 2007 and 2009 for PANASIA: the CPC charges kept increasing, and the customer base built up. In 2008, PANASIA acquired another distributor of BIDU in Taizhou City, Jiangsu Province. In 2009, active customers were about 4,000 with a total base of 10,000, and the revenue was about RMB230 million. BIDU rewarded PANASIA luxury cars for its great performance in 2009, 2010, and 2011, and Robin Li visited PANASIA in Wuxi for four times.
So why did the performances star choose to leave BIUD?
The main reason why PANASIA chose to stop the ten-figure business is the impossible growth target. BIDU set the growth target in Q3 2013 at around 30%, and PANASIA tried to persuade the BIDU management to lower the target but in vain, and it turned out PANASIA failed the target and was fined RMB20 million. The profit in Q3 was less than RMB20 million, minus the fine, resulting in no profit. Therefore, PANASIA chose to leave BIDU for Qihoo after long consideration.
First of all, the rebate rates PANASIA received from BIDU have been cut down while the operating costs climbing, causing the profit margins reducing. In the early years PANASIA did not provide any social insurance plan for their employees, later they did, and employee wages have been rising.
Furthermore, Wuxi is an old city in Southern Jiangsu Province, and it is famous for being one of the birthplaces of China's modern industry and commerce. About 90% of PANASIA's customers are manufacturers, and a small percentage is medical care customers. As for BIDU as a whole, at first machinery industry played an important role, then medical care customers increased and became the primary. The spending of medical care customers are much higher than manufacturing customers, for example, a hospital spends RMB10,000-RMB20,000 per month on BIDU, while a big manufacturer could only spend RMB2,000-RMB3,000 per month. Without enough medical care customers, PANASIA may resort to non-enterprise customers, but non-enterprise customers lead to losing money, so they did not have much choice but to leave BIDU.
After PANASIA terminated the contract with BIDU, BIDU picked three small-sized distributors to take over the customers of PANASIA, and BIDU initiatively lowered the sales target for the successive distributors. And the revenue came from ex-PANASIA customers in Q4 dropped by 10% compared to the revenue in Q3.
PANASIA may be the first largest distributor who chose to leave BIDU, but it is definitely not the last.
2.2 Primary Customers
BIDU is a drain on not only distributors' profits but also customers'. And the primary customers of BIDU, medical care customers, have a strong urge to negotiate the fees BIDU charges its customers because their profits have been gradually squeezed due to the increasing BIDU charges.
"Putian Xi" Versus BIDU
In China, about 1400 private hospitals have been established and controlled by a couple of investors from Putian City, Fujian Province, and those hospitals are called "Putian Xi" in Chinese. These investors are not independent from each other, and they are more like members of a big united family. "Putian Xi" accounts for the lion share (about 80%) of the total private healthcare market share in China.
"Putian Xi" has assigned a large part of their revenue to advertise on BIDU. While BIDU keeps raising the CPC charges, Putian Xi raise concerns about their profitability, and they are united to negotiate with BIDU about lowering the charges.
Moreover, Qihoo will launch its "Liang Yi" service panel by the end of this year with combination force of medical authorities. "Lang Yi" service panel would include a whitelist of legitimate health care institutions in China. Qihoo is currently not involved in medical sector, but its launch of "Liang Yi" service would certainly give users more clarity when it comes to choosing hospitals, rather than relying on the "V" sign given by BIDU.
3. Inflated Mobile Revenue
BIDU bragged about its progress in mobile, and in order to convince investors of the story about good mobile opportunities, BIDU intentionally exaggerated the mobile revenue.
According to the Q4 2013 earnings call, as of Q4, mobile accounted for over 20% of the total revenue. The great majority of this revenue comes from mobile search. The CPC for mobile is roughly 60% of the PC CPC. That has been increasing, and in Q3 2013 it was about 55% of the PC CPC; last quarter it reached 60%. The mobile traffic is expected to surpass PC traffic sometime this year.
We learned from distributors and customers that, PC search customers are mandated to open mobile account, and CPC for mobile is much cheaper, 10%-20% of the PC CPC. For example, CPC of a medical key word for PC is RMB100, while the CPC of the same word for mobile is only RMB10. And as of Q4 2013, mobile traffic only accounted for 40%. Mobile traffic Vs PC traffic is 4:6 while mobile CPC Vs PC CPC is 15:100, and a simple math multiplying traffic by CPC turns out to be 1:10, which roughly means that mobile search accounted for 9% of the total revenue. The ratio may not be that precise, but the stated 20% is quite far from 9%.
It is inevitable that mobile traffic would surpass PC traffic, and when mobile traffic become primary, we do not think mobile monetization will follow naturally, and BIDU would be gradually losing its competitive edge.
Losing Competitive Edge
So far BIDU remains the market leader despite the fact that its market share is being slightly poached by its competitors since its market share, by volume, dropped monthly by 2.4% in Q4 2013.
Source: Tech in Asia
Qihoo was able to get up to speed so quickly in search -- from zero when it launched in 2012 to as much as 21.8% of the market by some counts today -- because it merely parlayed its success operating China's leading Internet browser and security software suite. The same thing would happen now with Tencent funnelling traffic to Sogou.
Slow Response to Mobile Market
Now BIDU is trying to navigate the shift from desktop computing to mobile devices. In China the importance of services accessible by customers on the move has increased. Almost 80% of the internet using population is accessing it via mobile devices. Therefore BIDU is grappling to obtain status in the mobile ecosystem that is already influenced by big rivals like Tencent Holdings Ltd and Alibaba Group Holding Ltd.
The company aims to complete various mergers and acquisitions in order to affirm its foothold in the mobile space. The company bought app store 91 Wireless for US$1.9 billion in 2013 and earlier this year the company acquired full ownership of its 59% subsidiary, Nuomi, a group buying site. Rumour is swirling that, integration after acquisitions is a mess, and synergies is yet to be seen, and it needs 30 years for the acquisition of 91 Wireless to pay off.
In 2014 mergers and acquisitions will remain the key theme for internet companies to bolster their market share in the mobile space. Three mega players in the industry have followed this strategy since 2012 as depicted in the graph below. Everyone is looking to close gaps in their business models and acquisitions remain the most used channel, and BIDU just moved and responded quite slowly than others.
Source: Bloomberg
We believe that BIDU has hit its peak and started to decline. Resting on the search engine market it has built a decade ago, BIDU has had lack of "new surprises" and put itself in a dangerous position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.