May 24, 2010 - Baidu, Inc. (BIDU-NASDAQ) provides Chinese and Japanese language Internet search services. Its search services enable users to find relevant information online, including Web pages, news, images, multimedia files, and blogs through the links provided on its Websites. The company also offers online community-based products and entertainment platforms; an instant messaging service; and a consumer-oriented e-commerce platform.

The company serves online marketing customers: small and medium sized enterprises, large domestic corporations, and Chinese divisions or subsidiaries of multinational corporations primarily operating in the medical, machinery, education, franchising, electronic products, e-commerce, ticketing, tourism, information technology, consumer products, real estate, entertainment, and financial services industries.

It sells online marketing services directly, as well as through its distribution network. The company was formerly known as Baidu.com, Inc. and changed to Baidu, Inc. in December 2008. Baidu, Inc. was founded in 2000 and is headquartered in Beijing, the People's Republic of China.

One of the reasons for the recent spurt: Google and the Chinese government are in a disagreement. The Chinese government wants Google to censor search results, which Google did for a while. Then Google had a change of heart. It wanted all search to be uncensored. It threatened to close down its search engine in China. The government sent out a notice to Google's partners in China that they should find alternatives to their Google search boxes. Google and the government have not been able to agree on a compromise and while Google will maintain a sales force and devolopment work in China, the search company will not be a presence there and will direct users to an uncensored site in Hong Kong. All of this drives traffic to Baidu. And the more traffic a search engine has, the more it gets paid for ads. First quarter revenues reflect this. They were up 60% from the same quarter last year.

Baidu's been a popular stock since early 2009 when it traded at a low of $10.50 a share (all prices reflect a recent 10 for 1 stock split). In fact, before the split, prices reached $714.70 a share, well above the average investor's usual share price. With the 10 for 1 split, the stock has come back to earth, somewhat, and trading volume has increased.

Here's an interesting aspect of Baidu as a search engine. In the Chinese language there are many different ways to say a letter or a word. For example, the letter I has 38 different ways of being represented. So for just that one word or letter, many different searches would be required to be sure all information was found. That means a lot more searches, which again, generates more traffic, which means more advertising yuan.

The company has no debt. There's $610 million in the bank for $1.75 a share. If management decided to buy other companies, buy back the stock, or start to pay a dividend, they have plenty of flexibility for any or all of them.

More numbers: Market Cap is $24.65 billion. Profit margin for the last 12 months was 36.19%. Return on equity was an extraordinary 42.18% while Return on assets was 22.93%. Beta is 1.93. 52 week low was $23.65, the high was $82.29. There are 347.85 million shares outstanding with a Float of 339.88 million. Insiders own 5.21%. Institutions have 82.40%. There is no dividend.

Baidu is in a great position in a country that is bursting at its economic seams. It's the leading provider for search in a country where computer ownership is only beginning. Of course, the big unknown is the political powers. If they decide that the company is doing something, anything, wrong, it can be out of business overnight. But as long as Baidu continues to censor and follow all government mandates, there shouldn't be a problem. Also a concern: what if Google decides to come back, and follow the rules? While it would take a while to win back many users, the company hasn't left a sales force and development team in China because they like the tea.

- Company Web site: www.Baidu.com

- Ted Allrich