Baidu (BIDU): Applying Chinese skills to Japanese market?

In December last year, Baidu (BIDU) has announced its plan to expand into Japanese market.

In February’s conference call, Baidu Chairman Robin Li said :

"..Another exciting initiative for Baidu is our upcoming interest into the Japanese search market. We believe that with our proven strength in Chinese language search and our focus on delivering the best user experience, we will be able to provide Japanese users with a quality alternative to existing search engines.."

I have problem to understand what is his so claimed advantage. At most I would agree that Japanese characters and Chinese characters look similar, so? Is that the critical success factor to run an online search business?

Now the Baidu Japanese site has officially launched.

To win a market in today's online world is all about marketing muscle and capability to understand local culture. What advantages does Baidu possess in Japan? I just know Chinese and Japanese culture are totally different, so is the way to do business in these two countries. Japanese market is not a easy market to crack, just look at Ebay's failure there.

In general I am not too impressed to see a young company like Baidu to expand overseas too quickly. The first question I would ask is “Have you fully explored your local Chinese market?” Chinese internet population is still growing at over 34% a year (based on the China Telecom 2006 annual report on broadband subscriber growth), how much is that in Japan? Why is Japan a more attractive investment to BIDU from ROIC (return on invested capital) perspective?

There are so many examples in which local Chinese companies failed miserably in overseas expansion. Lenovo’s acquisition of IBM PC unit (yes, this is not a proven failure yet), TCL’s acquisition of Thomson Electronics Corporation, just to name a few.

Baidu has not announced any acquisition in Japan or in any overseas companies yet, if that happens it may be good chance to short.

Disclosure: I have no position in BIDU

揀股心得2 : 利用Google Trends 去了解一種產品的流行情況

去分析一間公司，我們都想了解這公司跟競爭對手產品的相對流行及銷售情況以推斷其業績。這當然有不同的方法去搜集數據，例如可以實地考察，跑到店舖去觀察其銷售情況，詢問你所識的朋友對這些產品的認知程度，等等。

在這裏我想為大家介紹一個更簡單而很好用的工具，這便是Google Trends。這個工具可以幫助我們去瞭解人們在Google 對某些Keyword search 的相對次數，他更可以作地區性的分析。

大家請跑到這個網址看看: http://www.google.com/trends

比如說，我想知道Wii 及 Playstation 這兩隻最新遊戲機的流行程度，只要作一簡單的搜索便可得到結果：

我們可以清楚看到再２００６年１１月開始，人們在Google找尋Wii的次數便開始上升，並且很快便超過了Playstation.

現在看看這兩間公司在同一時期的相對股價走勢 :

Sony(SNE), Nintendo (NTDOY)

可以看到兩間公司的股價走勢也和人們在Google 搜索的次數一樣，有趣嗎？

我們更加可以作地區性的分析，下圖是局限於香港的搜索結果，可以看到對比更大，亦即是說香港人對Nintendo Wii 的興趣更大。

以下是全世界頭十位的排名，明顯可以看到在日本Nintendo Wii比Playstatiion更流行。

雖然我不能証明在Google search 勝出的品牌也同是銷路最好的品牌，但是直覺上我們也可以知道這兩者之間應該是有正面的關係。希望這小工具可以幫助到大家去比較兩間類似公司的業績分析。

以下是我較早前寫的另一個心得:

揀股心得1：查看一間公司的招聘網站去了解它的真實發展情況

Another Solid Year For Tencent (TCEHF.PK or 0700.HK)

Tencent (TCEHF.PK or 0700.HK) announced another solid year of performance yesterday.

Tencent is the largest IM (instant messaging) service provider in China with 580M user accounts. MSN or ICQ is not even a fraction of this number in China, you can look at this chart from Google Trends, it shows the relative frequency of keywords (QQ, ICQ, MSN) search in China, it is a very good indication of their relative popularity among Chinese internet users. We can see from the chart that except in Shanghai where MSN is more popular than QQ ("QQ" is the name of the IM service offered by Tencent), the number of QQ keyword search far exceeded ICQ and MSN in other cities. This is intuitive because there are more foreigners living in Shanghai than in any other Chinese cities, they may be more inclined to using MSN than QQ.

Tencent also provides online game and other internet and mobile value added services in China.

Lets look at some of the important numbers:

Revenue Up 132% YoY
Operating Profit UP 140% YoY

Profitability grows faster than top line! This is a very good sign. A lot of companies sacrifice profit by top line, while Tencent can grow top line by more than 2X with IMPROVED profitability, really impressive !

Online advertising revenue increased by 137% YoY. Majority of such growth was attributed to increased in-game advertising revenue. This is another great thing, in-game ad is believed to be a good new channel of internet ad. EA (ERTS) is also doing the same thing by placing ad to its sports games.

About the Chinese internet development, according to China Internet Network Information Center (CNNIC), Chinese online population has grown by 23.4% in 2006 (vs. 18.1% for 2005). Broadband users growth is at a even higher rate of 41.1% to reach 91M. Country internet penetration rate is 10.5%, versus mobile phone penetration of 40%, still much room to grow!

For those of you who are aware of the new Chinese tax unification policy enacted in the National People Congress meeting concluded last week, coproate tax rate will be standardized to 25% for both local (used to be 33%) and foreign enterprise (used to be 15%) with 5 years grace period, it will have no effect to Tencent (Tencent is a 'foreign' company from tax perspective because it is registered in Hong Kong !!) because it is based in Shenzhen and the Shenzhen government still honour the special 15% tax rate which is eligible for 'strategic high tech' companies located there.

Share price dropped by more than 5% today because of a CITI downgrade from BUY to HOLD saying the share price has already appreciated by 20% since Jan and investor shall look for more attractive entry point.

I don't agree with CITI's report and I see this as a good buying opportunity. I've increased my existing LONG position at HK$26.2 today.


Disclosure of Interest: I am LONG in 0700.HK