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Hedge Fund Folk, CFA
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I'm a Hedge Fund Portfolio Manager focusing on Greater China Investing. I usually write to friends and will re-post some of my writings here to share with you.
  • The Google Game  0 comments
    Jan 21, 2010 7:40 AM

     

    I got a lot of ideas for this since day one, because Baidu’s price 440 is getting juice and maybe it’s time to squeeze it again, I’ve done that in 2008, it may be the come back time now. The day is get late, so I just stress some,

     

    Today is google’s earnings day, analyst will ask questions, serious ones. So by the time you wake up, stories will be flooding to you. I’m getting up early.

     

    See, some people believe that Google leaving is scam, because after so many years, it still can’t beat Baidu, and the profit from China is really tiny compared to over 200mln annual Net profit, China’s contribution is just a few percentage points. So Google is beaten, and it’s time to go and they’re just making a gesture for it.

     

    Good story, but considering a thousand employees with 35% market share(09 Q4), growing from 15% in 2006, making at least millions a years(they don’t say), this market is just at least self sustaining. These MNC will only leave when they can no longer cultivate the market with substantially yearly loss.

     

    Ok. Some say they truly believe the do no evil stuff and are fighting against the GFW for a free web hence human rights come first. Though I’m deeply moved and I'm already in a pool of tears here, you got to think twice for that.

     

    I’ve done some in-depth research, goole.cn’s localization has been truly successful in China, namely copy-catting Baidu’s model, long list for that, the more I look into this, the more impressed I get with Kaifu Li, he’s a true business man, No doubt. Google’s killing machine has not really come into China yet, see what Google (US) has done over the past few years, the applications/techs that Baidu can never have.

     

    Some say, google leaving is sure thing because these big shots were too vocal, it’s like declaring a war and they gotta go or loose face. I called my buddy in oracle and asked him for some close news in Beijing, first, the business is normal, second, nothing got Un-sensored in google yet, when will google start doing that? And Adsense and Adword will continue to be there even the .cn is down.

     

    At last there’re game theorists and conspiracy theorists proposing doezens of themes, because we Chinese seem to be addicted to that after the <currency war> stuff. No comment.

     

    Google want something, I think that should be related to some product/service/patents restrictions in China, no big ones but profitable ones. But I don’t really know, and I know if you know, you wouldn’t tell me. So let the guess do its magic.

     

    Baidu’s valuation, that’s interesting, most are giving a 50% probability, 15% +market share, 2-5%earnings accretive, 40% 3 year CAGR, that got you 500 right on the spot. Believe this? Of course if Google really leaves,

     

    Baidu’s short is a trading/growth story short which means you’re going against high cash flow and high valuation base, and the causality ratio is supposedly very high, and 10%-15% should call it a luck day.



    Disclosure: Short BIDU
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