Is Baidu’s $1 Billion Share Buyback Program a Good Deal for Shareholders? презентация

Shareholders?

By Sean O’Reilly

it advisable for a company to repurchase its shares: First, the company has available funds -- cash plus sensible borrowing capacity -- beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively calculated.”
-- Warren Buffett, 1999 Berkshire Hathaway Chairman’s Letter to Shareholders

June 30, 2015:
Total revenues up 38.3% year over year to $2.67 billion
Operating profit fell 2.5% to $559.6 million
Net income slid slightly to $590.6 million
Mobile search monthly active users increased 24% year over year to 629 million
Traffic acquisition costs as a percentage of revenues dropped from 13.5% of revenues to 12.7%

profitability was investments in the company’s “O2O” initiative
O2O stands for “online to offline”, which basically means helping mobile internet users buy goods at physical stores
Baidu aims to be a leader in this burgeoning industry despite fierce competition
O2O & Other division reduced operating margins by 25.3%
Following the release, Baidu announced a $1 billion share repurchase program

of intelligent capital allocation, or a ploy to placate shareholders after a terrible quarter?

capital:
Capital investments
Dividends
Share repurchases
Acquisitions
Does the $1 billion share repurchase make economic sense?

to prove that it is the best use of capital – instead of paying a dividend or expanding
This is tricky because we are on the outside looking in on Baidu’s operations
Comparing Baidu’s valuation to other leading internet search giants is instructive

leading position there is secure for this reason
China’s middle class and Internet use will only grow from here
Growth initiatives like “online to offline” investments offer growth potential in addition to this

24 times trailing free cash flow
Likely to grow faster than Alphabet for foreseeable future
Has a dominant position in a burgeoning Internet market that stands to be much bigger than the U.S.
Share buybacks announced only after shares dropped because of short term concerns