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The Chinese search engine goliath Baidu (BIDU) is supposed to be the best thing since Google (GOOG), right? Well, maybe not, according to a spate of recent news articles and some negative remarks from Credit Suisse analyst Wallace Cheung, who cut his rating for the stock. Just the slightest hint that an analyst thought there was something wrong with Baidu caused its share value to drop.

Baidu has been dropping for some time since recovering slightly over the summer, as you can see from the chart. It looks like this stock's run is over, but is it still a value buy? After all, Baidu's stranglehold on searches in China makes it a buy, according to investing guru Warren Buffett. Baidu still has an 83.6% share of the search query market in China in 2010, according to Resonance. Google only received 11.1% of the search engine queries in China during that period.

Baidu has recently displayed some impressive revenue growth, as you can see below. As Mr. Buffett told us, owning a "tollbooth" such as Baidu can be profitable. Baidu's revenue has risen to $2.9 billion, hardly in the Google range, but it is growing.

Google has also shown an equally impressive increase in revenue in the same period, yet Google's stock is worth about seven times as much as Baidu's.

Is Baidu a bargain version of Google or a value buy? It might be, after all, value buys are often stocks that others might find distasteful. A lot of people will find investing in Baidu distasteful. The company has been sued by Americans who claim it censors pro-democracy content, yet like a classic value investment, Baidu makes a lot of cash and delivers some impressive fundamentals.

The latest figures indicate that Baidu's sales growth stands at 83.2%, while its income growth stands at 88.3%. That gives Baidu a net profit margin of 46.45%, which is made even better by the fact that the company has a debt-to-equity ratio of .12%. Baidu is growing fast, and it has a very small amount of debt for a company of its size. Baidu currently holds long-term debt of just $376 million and a market cap of $37.79 billion. In contrast, Yahoo (YHOO) holds long-term debt of $130.15 million, so those figures are typical of the search engine sector. Microsoft (MSFT) has long-term debt of $11.94 billion.

There are some bothersome aspects of Baidu that investors should be aware of. There apparently is no cash flow statement available for it because of Chinese law. It might be nice to know how much cash the company is actually bringing in. Figures on revenue are available, but not cash flow. As a value investor, I like to know how much cash a company is actually making. The company does apparently have $2.94 billion in the bank, but there is no listing of cash from operations.

Despite all this, Baidu is an interesting company and an authentic value play. The company is generating some impressive revenues and proving that owning a tollbooth can be profitable. The only problem with owning a tollbooth is that it depends on having the people in power on your side. If they change or turn on you, the cash cow is dead.

Baidu is a value play. It is making money and growing, but its business model depends heavily on political conditions staying the same in another country.

Source: Baidu: Worth The Risk?