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Baidu: Beware Downside Risk

Let's quickly check the scoreboard with Mr. James Taylor. When he wrote his article on June 7, he called Baidu overvalued at around 140 and a market cap of 4.25 billion. As of closing on Fri. Sept. 21, a mere three and half months later, Baidu is firing on all cylinders with new products and strong earnings growth and now has a stock price of 284 with a market cap of 9.66 billion. So Mr. James Taylor, you are wrong to the tune off 100 percentage points. And Baidu is far from done...time for you to eat some crow...

Baidu: Beware Downside Risk

I'm getting really tired of people like James Taylor who write about China, but who have little idea about what they're talking about. Case in point is his article on the valuation of Baidu. In it, he states that "I typed in a search for 'basketball' and I received numerous matches. However, unlike Google, where there are numerous ads affiliated with my search found on the right side of the page, with Baidu I found none."

Mr. Taylor, hello! If the Chinese did searches by typing in English, then they would use Google instead of Baidu. Common sense should dictate that most Chinese would type in "篮球" (the Chinese characters for basketball) instead of "basketball." That's why the search for basketball has barely any ads and the search for the Chinese characters for basketball leads to a whole string of ads. The ads under the English have almost no value in Baidu, while the ads that match with the Chinese characters have value. Use some common sense and do some basic due diligence.

All the valuation models in the world will you do no good if you don't have a basic understanding of China's people and culture. What James Taylor has shown is just plain ignorance about China.