Baidu.com (BIDU)

Reason for removal

Investments Costly in the Face of Strengthening Yuan

Exchange rates will affect Baidu since its revenues and costs are denominated in RMB while its financial assets are predominantly given in dollars. Baidu's dividends and other dollar fees paid to its ADS (American Depository Share) holders depend upon the revenue generated by its Chinese subsidiaries and affiliates in RMB. Significant revaluations of the RMB would affect Baidu's cash flows, revenues, financial positions, earnings, and the value dividends payable on its ADSs in US dollars.

Value increases in the RMB relative to the dollar make investments or expenses denominated in RMB more costly for Baidu, since the company generates its financial capital in US dollar denominations. Value increases in the RMB relative to the dollar will also improve Baidu's revenue numbers as reported in dollars, will improve Baidu's ability to pay dollar denominated dividends from revenue and will improve Baidu's ability to finance expansions from RMB revenues. Additionally, all of Baidu's liabilities denominated in dollars will bi minimized by an appreciating RMB.

Actually, an appreciating RMB would be a good thing for Baidu. Although the company does report in USD, it operates in RMB. Any acquisitions in China would be unaffected by exchange rates, and overseas acquisitions would actually be cheaper if the RMB strengthens.

Example: if the CNY:USD rate is 8:1, Baidu needs to use 8 RMB to buy 1 dollar worth of assets. If the RMB strengthens to 5:1, Baidu needs to use only 5 RMB to buy 1 dollar worth of assets.

Note that the company does not pay dividends. It could, but has stated that doing so would have tax implications (withholding taxes) and does not anticipate doing so in the future.

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Baidu is a great company with a tremendous jump on the all important Chi...

Suggestion by Dseg10 on 2008-01-19 00:34:44

Baidu is a great company with a tremendous jump on the all important Chinese market - all of which is explained in full in this article. I got to say though, while Baidu deserves their success and worldwide acclaim as the traffic kings of Chinese search, they have also benefited from a number of dubious advantages mainly centered around governmental assistance and free MP3 downloads. I strongly believe that if you were to strip out the traffic generated by people looking to download free MP3s, Baidu's share of the market would drop dramatically. My two cents.

Add comments or discussion related to this suggestion here.

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