Stock Pitch: Baidu, Inc.

Ticker: BIDU

Spring 2014 2/4/14

“The Chinese Google” Founded in 2000

Compare baidu.com to google.com Most revenue comes from online marketing

The dominant internet search engine in China Key business driver

Helps new ventures 79% Revenue Share 470,000,000 search users in China

86% prefer Baidu

Continued Overview Clear push towards mobile

Market leader in mobile search 80 million active users

Gateway for discovering apps Search “accounting apps”, receive relevant

results

Moving towards diversification Looking to diversify revenue stream Most recently acquired the remaining portion

of Nuomi.com Similar to Groupon

Risks & Concerns While Baidu dominates PC search, the

mobile market is very young and anybody’s game Mobile will experience the most growth Mobile search is less profitable

Smaller screen size & slower internet speed Much more competitive

Very volatile for trading Beta: 1.63 - 2.38 52wk Range: 82.98-185.5

Speaking of volatile..

Risks & Concerns Continued

Baidu is actively expanding into non-search areas Much like GOOG: YouTube, Maps, etc. May affect overall margins

Baidu relies heavily on small/medium sized businesses Rely on Baidu to reach customers An economic downturn could be

particularly hard on revenues

Solid Foundation Dominates the PC market and analysts believe this

will not change any time soon

Baidu’s data helps improve other wings of business Can monitor each click

Narrow economic moat Recent diversification fends off competition

Baidu Knows, Music & Video Streaming, Etc. Heavily built on Network Effect

Moat is limited by increasing competition and the rapid tech cycle

Building A Moat

Growth China is home to as many as 50 million

small-to-medium enterprises Expected growth rates in double digits for

next few years

E-commerce is expanding rapidly in China

Internet penetration rate in China only at 42% Government plans to invest $323 Billion by

2020 to expand connectivity

Growth Continued Acquisitions

Sitting on $33 Billion cash pile Free cash flow at $9,430,000

Stable Health Quick Ratio of 4.1 ROA & ROE much higher than

industry average

Revenue Growth

Baidu Revenue 2008 2009 2010 2011 2012 Online Marketing Services $3,194,461.00 $4,445,410.00 $7,912,869.00 $14,489,767.00 $22,245,643.00 Other Services $3,791.00 $2,466.00 $2,205.00 $11,019.00 $60,383.00

*Years ended 12/31*In RMB (Chinese Yuan)*In thousands expect per share and per ADS data

Net income has increased from $1,048,108 to $10,456,028 during this period

Biggest Selling Point Price/Earnings

Market Value PS / EPS Between 2005 and now, P/E has shrunk from 344.8

to 32.69 Mainly due to expanding revenue Revenue growth (3 yr avg.): 71.2%

Industry avg.: 22.6% Forward P/E estimates: 3-5 Industry Average: 43.5

Fair Value estimate recently changed from 140 (10/30/13) to 206 (1/27/14) per Morningstar Price/Fair Value has dropped from 1.17 to around .76

Verdict Soft Buy

I believe Baidu has the ability to reach 200 and higher within the next year Around 25% annual return

Primary concerns with price Stock has increased dramatically in value in

the past year Many along for the ride may drop out

Points of optimism P/E shrinking, revenue increasing Financially stable