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31 reasons I am short BIDU

|Includes: Baidu, Inc. (BIDU), GOOG, SINA
I am short BIDU at $442 and I am patient, humble, and reasonably confident. Here are some of the reasons I believe that I will prevail in making a profit.
 
Also, please feel free to remind me if there are other reasons I may have missed, thank you.
 
  1. By BIDU’s own admission issues with its Phoenix Nest internet advertisement conversion will persist into 2010 (http://www.chinadaily.com.cn/cndy/2009-10/28/content_8858862.htm)
  2. Last earnings report, BIDU stock declined over 20% - many of the same issues exist today
  3. Recent stock price run-up not fundamentally based, in my view
  4. COO & CTO depart within 10 days of each other (January 8th and January 18th) – see press releases at: http://ir.baidu.com/phoenix.zhtml?c=188488&p=irol-irhome
  5. Senior management turnover is further confirmation of major misstep and issues with technology conversion, in my view
  6. 2010 P/E of over 50x and a growth rate slowing into the mid-thirties for revenue
  7. Revenue and earnings growth declined sharply in 2009 (http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_B/threadview?m=tm&bn=22855&tid=296422&mid=296422&tof=-1&rt=2&frt=2&off=1)
  8. 2010 outlook uncertain due to technology conversion
  9. 4Q09 & 2010 EPS expectations reduced dramatically following last quarters results; any disappointment on these already lowered results would crush the stock (http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_B/threadview?m=tm&bn=22855&tid=296519&mid=296519&tof=-1&rt=2&frt=2&off=1) AND IMPORTANTLY (http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_B/threadview?m=tm&bn=22855&tid=296793&mid=296793&tof=-1&rt=2&frt=2&off=1)
  10. Chinese government cracking down on illegal websites closing thousands and making opening a new website more challenging. The closed sites were high revenue and profit sites.
  11. Chinese government is worried about bubbles and an overheating economy raised a key interest rate and increase reserve ratios – attempting to apply the breaks on the economy. Need more proof – see another sharper Jan. 19, 2010 interest rate increases: http://finance.yahoo.com/news/China-Taiwan-wary-of-bubbles-rb-3358832004.html?x=0&.v=2
  12. Move to Phoenix Nest system very disruptive for BIDU’s customers.
  13. Risk that GOOG may yet decide to stay in China – in fact they have reported that they seek and expect to have discussions with government: (http://www.bloomberg.com/apps/news?pid=20601170&sid=aREgM8FvboOM).
  14. I think that Google is smarter than most think and that its timing is perfect with its biggest competitor having problems with leadership changes, technology conversions, hacked systems causing loss of service to customers, and losing market share. Google build its successful global business with great skill and expertise – I think when we all look back at this incident we will see the genius. However, the delay of its mobile phone launch raises questions (http://finance.yahoo.com/news/Google-postpones-mobile-phone-apf-3717963387.html?x=0&sec=topStories&pos=1&asset=&ccode=), so, this play by Google remains far from over
  15. BIDU is priced for perfection
  16. See some of the stuff on this blog: http://baidu-news.blogspot.com/
  17. GOOG less expensive than BIDU on a fundamental basis – with more diversified revenue streams
  18. BIDU – should get a corporate governance discount
  19. BIDU – ownership and legal structure – investors do not have any claim on the actual key business licenses or profits (cannot pay dividends) in order to comply with Chinese laws to sell stock offshore
  20. The leading “investment thesis” of those who believe that BIDU shares will trade higher – is that the stock is going up or CHINA. I think that BIDU is in a great market and a nice position in China – but, can it fully leverage the opportunity, will competition come in, does the valuation factor in its single market dependency, etc.?
  21. Competition ramping up and taking advantage of Phoenix Nest misstep – see the end of this good article – (http://www.ft.com/cms/s/0/4a108e44-044d-11df-8603-00144feabdc0.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058&nclick_check=1) and Microsoft (https://news.fidelity.com/news/news.jhtml?articleid=200912290401RTRSNEWSCOMBINED_TRE5BS0V6_1&IMG=N&cat=Top.Investing.RT&ccsource=rss-Top.Investing.RT)
  22. BIDU is losing search market share in China – see compelling chare at: http://gs.statcounter.com/#search_engine-CN-monthly-200906-200912%20
  23. BIDU has yet to be able to move meaningfully into new markets outside of China. Recently Baidu denies recent rumors about expansion in Europe: http://searchengineland.com/baidu-calls-european-expansion-rumors-groundless-11417 - Baidu in only one market still
  24. Overall markets have been up significantly and due for a pull-back – sovereign debt risk and other geopolitical factors not discounted properly, job growth a long way off for U.S., etc., etc.
  25. Technically, I think BIDU will retest lower levels – does anyone have access to a technical analysis on BIDU? Could you please share it?
  26. Most Wall Street Analysts have moved price targets up and appear bullish – few seem to discount Google staying (and potentially benefiting and Google’s recent market share gains), Baidu’s recent technology challenges, the departure of senior executives, the recent run-up in Baidu’s valuation, etc.
  27. Mounting media focus on potential troubles at Baidu, see: http://www.theepochtimes.com/n2/content/view/28203/ and http://online.wsj.com/article/SB10001424052748704541004575010542693689462.html?mod=WSJ_business_whatsNews
  28. Baidu to be sued - http://www.techsecuritychina.com/2009/12/22/9036-shanda-literature-will-sue-baidu-com-in-january-2010/
  29. Interesting perspective on timing of Baidu departures and events at Google: http://www.techcrunch.com/2010/01/18/baidu-cto-quits/
  30. Baidu hacked and lost service to users during quarter – may have played role in management departures: http://www.cso.com.au/article/332212/group_behind_twitter_hack_takes_down_baidu_com?fp=4194304&fpid=1
  31. Catalysts – the recent 2nd Senior Executive departure, Google’s decision, BIDU’s upcoming 4Q09 and 2009 earnings report, broader market challenges, major corporate failures (e.g., JAL - $25B in debt, no just a $120M market cap after losing 90% of its value in a week), and other unknowns (e.g., sovereign debt, terror threats, etc.)


Disclosure: I am short BIDU