Archive for Baidu

Articles of the Week

Posted in Digital Media, News with tags , , , , , , , , , , , , , , , , , , , , , , , , , on December 5, 2008 by Dave Liu

Microsoft, Yahoo Said To Be Hammering Out $20 Billion Search Buyout; Denied — Microsoft (NSDQ: MSFT) is working out a deal that would ultimately net it Yahoo’s search business for $20 billion, The Times Online reports, but has been denied outright by parties involved. If it turns out to be true, it would be complex deal with many moving parts: MSFT would initially only invest $5 billion, with the option to buy out the new unit for $20 billion after two years. Yahoo (NSDQ: YHOO) would continue to run its own email, messaging, display and content services businesses in the event of a buyout. Velocity Investment Group founders Jonathan Miller and Ross Levinsohn would likely lead the new search division; and they’d match MSFT’s funding with $5 billion from external investors. The new unit would end up with a 30 percent stake in Yahoo, and the external investors would have the right to appoint three of Yahoo’s 11 board directors. Senior execs at both MSFT and Yahoo have reportedly agreed on some of the terms, but the deal hasn’t been finalized—and may not be approved at all, The Times’ sources say.

Facebook Connect Set To Expand; Includes Discovery, Digg, Hulu and Others — Facebook, in an increasing attempt to prove its utility beyond its own site (and hence build on its advertising potential in the long run), is expanding its Facebook Connect service on some major media and services sites, including Discovery.com, SFChronicle, Digg, Citysearch, CBS.com, Hulu and others. The Connect service allows a federated identity system of sorts, competing with other services/efforts such as OpenSocial (backed by Google and MySpace) and OpenID, and also allows Facebook services to go outside its own site onto other services. It allows Facebook users to sign in on these third-party sites, connect with their friends who also use the sites, and then share their info and action on the social networking service.

Skol! Digitas Continues Expansionary Roll, Enters Sweden — On the heels of its expansion into South America last week, Publicis’ Digitas has turned its sights on Scandinavia, launching Digitas Sweden. The new Nordic outpost has been formed by combining two pre-existing Publicis units – direct and digital marketing shop 1.1.3, and pure play creative shop Joy – to form a new Stockholm-based full-service digital marketing agency. Digitas Sweden will be led by 1.1.3 founder Lisa Amatiello, who will report to Alan Rutherford, CEO of Digitas Global. The agency will continue to serve 1.1.3 and Joy clients while also offering expanded reach for Digitas’ global clients.

AOL Starts Site For Parents Who Ain’t Got Game (Knowledge) — Parents hit with pre-holiday pleas for “Grand Theft Auto IV” and other hot video games have a new source for sorting out which are appropriate with the launch of PlaySavvy.com from AOL. A complement to the Web portal’s game-focused properties, the new site offers parents a guide to games, from ratings and reviews to connecting with other parents about making informed buying decisions.

During October, Consumers Conducted 12.6 Billion Searches In The U.S., Up 7% Sequentially, According To comScore — Searches on Google rose 7% to 8 billion. Yahoo followed, up 9% to 2.6 billion, and Microsoft was up 8% to 1.1 billion. Google still owns the market–up 0.2% to 63.1%–followed by Yahoo at 20.5%; Microsoft at 8.5%; Ask, 4.2%; and AOL, 3.7%, according to comScore. AOL not only saw its U.S. search count decline, but also its market share, which fell 0.4%. Fox Interactive Media’s MySpace also declined 8% in October, from 614 searches to 563.

Baidu To Launch New Search Product — Baidu, Google’s Chinese search engine rival, will overhaul services after being accused of allowing unlicensed suppliers to fake documents and buy their way up the search results, reports Ars Technica. Chinese citizens had complained about paying exorbitant amounts for products and services found on Baidu’s search engine that later proved to be ineffective. China’s top-ranked search engine expects to unveil a new advertising platform that will offer more information about companies listed in search queries. The forthcoming new platform, Phoenix Nest, aims to offer better search result rankings and resolve some recent problems pertaining to competitive ranking.

MySpace CEO: Cautiously Optimistic About 2009; Chance To Pick Up Startups On Cheap — MySpace CEO Chris DeWolfe was speaking at the Reuters Media Summit (not open to other reporters, only internal Reuters reporters), and said he is cautiously optimistic about growing its ad revenues in 2009, something that of course he has to say officially. “We’re up 18 percent year-over-year as of last quarter,” he said and hopes to grow it next year, despite the economic crisis. He continues: “We haven’t really seen any impact, other than we think we could have grown even more than we have.” Isn’t that the impact? To think that they won’t see a major impact this Q4 and next year is to be delusional, but I think they know that part and have to tow a corporate line publicly.

Newspaper Online Revenues Fall In Third Quarter — The Newspaper Association of America on Friday reported yet more depressing figures for the industry-in-decline that were compounded by a 3% year-over-year drop in overall online sales. This is particularly bad because online revenue growth was supposed to offset rapid declines in print ad sales; now, the industry is reporting losses from both revenue streams. In total, online ad sales fell 3% to $749.8 million, or about 12% of total newspaper spending. Print and online declines combined to produce an 18% decrease in total third quarter spending, from $ 10.9 billion in 2007 to $.8.94 billion. What we have here is an industry in a nosedive. Blogs, social networks, 24-hour news sites like CNN.com and real-time communication services like Twitter are stealing eyeballs from newspaper sites as the weak economy forces financial services, automotive and retail advertisers to greatly cut back on their spending. Meanwhile, newspaper publishers across the board are reporting steep declines and are responding by cutting costs, including thousands of jobs. Some publishers have also defaulted on debt payments, shrunk their pages, or even eliminated print editions altogether, in order to cope with the downturn.

CNBC’s Own Bad News May Be Coming, Soon, Despite ‘Massive’ Marketing Campaign — CNBC, high on its viewership numbers as the markets continue to nosedive, is in for its own downturn possibly by Q1 of next, a long cover story in the latest issue of B&C says. “Despite the yuks and the huge numbers, the network is now in the process of slashing as much as 10% from its budget. People at the network, says one staffer, are ‘scared s—less.’…As CNBC enjoys a new level of visibility and is about to launch a massive new marketing campaign to capitalize on the momentum, it must do so while navigating through the same flailing economy that has sent the network’s proverbial stock soaring.” This far into Q4, the channel viewership is up 66 percent compared to the year-ago quarter.

After Layoffs, Newspapers Embrace Content Sharing; McClatchy And CS Monitor Exchange Foreign Reports — As the newspaper industry’s prospects darken, and rounds of buyouts and layoffs have left little room for more cuts, The McClatchy Company (NYSE: MNI) is joining with the non-profit Christian Science Monitor on sharing foreign news coverage on a trial basis. The trial will last for three months and then the two will evaluate whether the combo worked. The exchange will involve two CS Monitor correspondents, one in New Delhi and the other in Mexico City, and two McClatchy foreign correspondents in Nairobi and in Caracas. The arrangement comes two months after McClatchy said it would cut an additional 1,150 jobs—10 percent of its workforce—while CS Monitor is preparing to shift from a daily to a weekly print pub and going online-only for breaking news. Meanwhile, the Associated Press is planning to slash 10 percent of its staff next year. That could make arrangements like McClatchy’s and CS Monitor’s more common.

Huffington Post Closes $25 Million Third Round; Plans Include ‘Focused Acquisitions’— After weeks of denials and “no comments,” political blog The Huffington Post has closed a $25 million third round funding from Oak investmentPartners, the company said in an e-mailed press release this morning. We reported earlier about a $20 million and above round with post-money valuation in the $110 million range. This probably puts it right at $115 million. The company said it planned to use the proceeds to support general growth efforts and for “focused acquisitions.” HuffPo also wants to build up its in-house ad sales team, as even the internet is succumbing to the wider economic turmoil. The three-year-old HuffPo had previously raised roughly $12 million from Softbank Capital, Greycroft Partners, co-founder Ken Lerer and Bob Pittman.

Ex-AOL CEO Miller Reportedly Raising Funds To Bid For Yahoo; But Could Be For His Own Fund — Jon Miller, former CEO of AOL and now one of the founders of VC firm Velocity along with Ross Levinsohn, is in the process of raising funds to try to buy Yahoo, reports the WSJ, citing sources. The story says he has been trying to do it for months. Our sources say that the WSJ might be reading too much into this: he and his partners at Velocity have been presenting to investors all across the globe, including sovereign investors in Dubai, to raise a new fund for his VC firm. So I would not be surprised if the two things got confused along the way, and someone expressed interest in putting money into a Miller-backed consortium. The story says that Miller believes he can do a deal that would be worth around $20 to $22 a share to Yahoo (NSDQ: YHOO) shareholders, which means raising about $28 billion to $30 billion to purchase the entire company. I have said before that the Indian tech-media giant Reliance ADA should look at a Yahoo deal seriously, and it is likely Miller has had conversations with them, considering Velocity’s India connections (it is an investor in NDTV there, among other companies). Full story —

Google Ratchets Back On Spending, New Projects; Buys Futures In Six Sigma — Nothing says serious about cost cutting and process quite like hiring a CFO with a black belt in Six Sigma management. With or without the tanking economy, Google (NSDQ: GOOG) has been heading towards maturing growth—you can’t keep up triple-digit growth or even double-digits indefinitely—and the addition of McKinsey vet and Bell Canada planning exec Patrick Pichette as CFO in August was one sign that cost containment was on the way. The slowing of online ad growth coupled with the unexpected speed of the economic downturn has only accelerated Google’s need to show maturity of a different sort. That would explain tonight’s long WSJ article about how Google is taking the responsible approach by cutting back on its ubiquitous product approach—along with some of the food perks and redundant offices. CEO Eric Schmidt told the Journal Google has to “behave as though we don’t know” what’s coming. That means cutting what Schmidt calls the “dark matter”—“projects that ‘haven’t really caught on’ and ‘aren’t really that exciting.’” Engineers may still get their 20 percent time but staffing and resources for their projects, particularly those without signs of real revenue potential, will be much harder to come by. Google needs hits that make money, not just headlines.

Yahoo Ties Up With CBS To Save Streaming Radio Service — Yahoo has turned to CBS to help keep its LAUNCHcast streaming radio service alive. As part of the new partnership, CBS Radio will provide the player and handle the ad sales for LAUNCHcast, and various CBS (NYSE: CBS) stations will be available on Yahoo (NSDQ: YHOO) Music. Yahoo will also incorporate more radio content throughout its news and sports portals. It’s the latest move in Yahoo’s strategy to “completely open” its music operations to other services: the company recently launched an enhanced music search service with Rhapsody (the same company it offloaded its premium music subscription business to in February).

Dow Jones Taps Langhoff To Lead European Charge, Focus On Online — Dow Jones (NYSE: NWS) has picked a local publishing exec with online tenure to lead The Wall Street Journal’s assault on Europe next year as it squares up to The Financial Times on its own turf. Andrew Langhoff, CEO of DJ’s Ottaway local publisher, will be publisher of WSJ Europe and MD of DJ’s consumer media group across the whole EMEA region, starting January 5. For extra brownie points, he will also run the South America consumer business, including The Wall Street Journal Americas. Over the last year, DJ has upped its European news coverage, debuted the US WSJ edition in some London locations and added a magazine to the European edition. But the ‘09 push is online. Guardian editorial development director Neil McIntosh is already due to start as WSJ.com’s Europe editor in the new year and WSJ’s LA bureau chief Bruce Orwall is moving to run the London bureau.

Conde Nast’s Flip Goes Flop: Teen Social Network To Be Shuttered — When news came out that Conde Nast was launching its teen social media site Flip.com, back in 2006, Staci had a very pertinent question: “Can Conde Nast, which has been so good at matching demographics with ideas for print, create an online place appealing enough to catch and keep teen girls attention among so much competition?” Now, with the announcement that it is closing Flip.com, the answer seems to be no. The site will close down on Dec. 16, according to a note sent out to users, reported by FishbowlNY. “If you have any flipbooks that you would like to save before this date, we suggest you print them. It’s easy; go to the flipbook and click on the Print button just below it.” How convenient.

FT To Do Some Buyouts; Salary Freeze; The Memo — The Pink One will pass out some pink slips, though more in form of buyouts than actual layoffs, reports Reuters, citing an internal memo sent out today by FT CEO John Ridding. The company has already done some redundancies in its library/research division in October. For those interested in a buyout, Dec. 19 is the cutoff. It also is freezing salaries for employees who earn more than $50K a year or the equivalent, which means most of the mid- to senior journalists at the company. That freeze decision could be reviewed if conditions improve later. Also, FT is offering some employees the opportunity to work three- or four-day weeks, which of course means at a lower salary.

IAC Dissolving Programming Group; Lehman Leaving, Jackson Taking New Role; Which Sites Are in Play? — PaidContent.org has learned that IAC (NSDQ: IACI) is dissolving its programming group as part of its post-spin reorganization. As a result, Nick Lehman, COO of programming, has to decided to leave. Michael Jackson, the president of programming who also worked with Barry Diller at USA Networks and Universal Television Group, will stay on in a new role. Lehman confirmed his move but declined comment on the reasons and referred to IAC public relations for details. (No response yet to phone and e-mail queries.) As we pointed out in some detail recently, Diller said in the Q308 earnings call that IAC would shed some of its emerging businesses and was rethinking investments; this appears to be part of that strategic shift.

Icahn: No MSFT-YHOO Search Deal—For Now; Opposes Sale To Miller — Activist investor and Yahoo (NSDQ: YHOO) director Carl Icahn is throwing more cold water on speculation that the company is about to sell its search business to Microsoft (NSDQ: MSFT). While he would like to see Microsoft take the search off Yahoo’s hands, MarketWatch quotes Icahn as saying there’s nothing imminent now and he knows of no discussions between the two companies. Shares of Yahoo were down over 1 percent to $11.35 in after hours trading. Last week, Icahn added nearly 7 million shares to his holdings in Yahoo—for a to 75.6 million shares— for the relatively low price of $67 million. He muscled his way onto Yahoo’s board back in July, after acquiring a 5 percent stake in the company.

Digg CEO: Read My Lips: Not For Sale — Digg says it is not for sale anymore. Really? How many times have we heard that one before? With a $29 million round recently, that was all but decided then. But wait until the next time someone floats a trial balloon through Techcrunch. For now, with no one coming forward to buy it at the valuations the company hoped for (that’s the reality of it), the four-year-old startup will dial back some of its expansion plans, instead prioritizing projects that generate revenue and profit, says the BW story. Among some of the new “focused” projects: ads in its RSS feeds; a revamped version of its own search engine for more targeted search ads; and it is within a month of closing a deal with a mobile ad provider to sell more mobile ads. On the more important revenue side, Digg tripled revenues in September over the last year. In 2009, CEO Jay Adelson expects “another tripling if not more.” Am I mistaken or are ad-network ads all that Digg has at this point? To scale from there will be tough in this market.

Cox Enterprises Merging Newspapers, TV, Radio Into Cox Media Group; 100-Plus Digital Services — Waving the operational efficiency flag, Cox Enterprises is merging its three media units—Cox Newspapers, Cox Television and Cox Radio– into the Cox Media Group headquartered in Atlanta. The units will operate separately but will share a corporate structure. When the move takes effect in January, the new group will include the flagship Atlanta Journal-Constitution and 16 other daily newspapers; 26 non-daily newspapers; 15 local TV stations; 86 radio stations (Cox Radio will continue trading on the NYSE); and 100-plus digital services. It also includes Valpack, the coupon company Cox put up for sale in August. Cox will continue with plans to sell Valpack and its newspapers in Texas, North Carolina and Colorado. Cox vet Schwartz, who will be president of Cox Media Group, listed digital as one of the advantages of merging the units: “We are bringing together our wide array of digital resources that ultimately will lead to enhanced online and mobile experiences for all our audiences.”

Adobe To Cut 600 Jobs; More Focus On Web Video — Adobe is cutting about 600 jobs, or 8 percent of its workforce, citing the economy slowdown as a reason. Sales for its Creative Suite 4 package, which includes the popular Photoshop, has been much slower than expected, the company said. And these cuts, which are across the board, will help it better focus on its growing online video (through Flash, the default online video standard now) and online software business, CEO Shantanu Narayen said, according to WSJ.
The company said it will record $44 million to $50 million in charges related to the headcount reduction.

Updated: Industry Moves: Microsoft Picks Qi Lu To Head Digital — Update: Microsoft has confirmed Lu’s appointment in an official release. Lu will start January 5, and report directly to CEO Steve Ballmer. He will oversee a trio of execs—but not all of the names initially thought: Nadella, Mehdi and Scott Howe, who has been promoted to SVP of MSFT’s Advertiser & Publisher Solutions group. Former aQuantive CEO Brian McAndrews previously held that title, but he’ll be transitioning out—and leaving MSFT—over the next several months. Microsoft’s quest to find a digital head will end in a rather technical choice: former Yahoo EVP of engineering for Search and Ad Tech Qi Lu, according to Kara. The final details of his contract are being ironed out, and could be announced by next week, the story says. This position has been vacant since Kevin Johnson left and joined Juniper.

Articles of the Day

Posted in Digital Media, News with tags , , , , , , , , , on October 23, 2008 by Dave Liu

LinkedIn Debuts B2B Network — Seeking new revenue streams, professional-focused social network LinkedIn today is expected to debut a network catering to business-to-business market researchers. “B2B market research is a $100,000 million dollar industry, and we feel we can become a leading provider of that data,” said Dan Shapero, director of business services for the LinkedIn Research Network. To date, the LinkedIn Research Network has already partnered with six market research firms–including Phoenix Marketing International and OTX–to conduct targeted B2B primary research among its network of some 30 million professionals worldwide. Among the other advantages that LinkedIn claims to have over other data providers is its global reach with over 13 million professionals outside of the United States on the LinkedIn network. The network also purports to provide deeper insights through better targeting by filtering respondents by title, seniority, function, age, country, and company size, among other variables.

Amazon Q3 Profits, Revs Up, But Poor Outlook Sends Shares Down — Although Amazon was able to beat an analysts’ consensus forecast of $0.25 per share earnings, shares were still down as much as 14 percent in after hours trading, which Marketwatch attributed to a poor Q4 outlook. That said, compared to some others, Amazon reported healthy Q3 numbers, as net income grew 48 percent to $118 million, or $0.27 per diluted share, compared with net income of $80 million, or $0.19 per diluted share, last year. Revenue was up 31 percent to $4.26 billion, missing analysts’ estimates of $4.28 billion. Amazon had offered revenue guidance of a range between $4.2 billion and $4.43 billion. Outlook: Q4 net sales are expected to be between $6.0 billion and $7.0 billion, or to grow between 6 percent and 23 percent compared with Q407. For the full year, net sales are expected to range from $18.46 billion and $19.46 billion, or to grow between 24 percent and 31 percent compared with 2007.

Health Content Wars: Microsoft Bests Google With Aetna, Yahoo Beefs Up Through Partnerships — Microsoft continues to line up HealthVault partners: the latest is Connecticut-based health insurer Aetna. Members currently using Aetna’s electronic Personal Health Record (PHR) feature will be able to transfer those records to HealthVault next month. Aetna is the first benefits provider to make use of Microsoft’s platform. Microsoft recently said that a number of health institutions want to tap both HealthVault and rival Google Health, but the Aetna partnership may be the first sign of a slight advantage over Google. While a number of pharmacy benefits providers have partnered with Google Health, we’ll see how long it takes before a major health insurer does the same.

Google Upgrades Analytics Functions — Google unveiled a major upgrade Wednesday to Google Analytics. It includes new services–such as custom reporting, advanced segmentation, API, visualization tool, integration into AdSense–and updated user interface and management interface. Until now these features had been “extremely expensive,” said Brett Crosby, senior manager of Google Analytics, suggesting companies spend millions of dollars annually for similar functions. “We took something expensive and difficult, and made it free and easy to use.

Olympics Pump Baidu Q3 Profits Up 91 Percent — Boosted by increased usage during the Beijing Olympics, Chinese search engine Baidu’s Q3 profits came in at $51.2 million (347.9 million yuan), or $1.47 per share, up 91 percent from last year’s $24.2 million (181.7 million yuan). Revenues increased by 85 percent, to $135.4 million (919.1 million yuan), from $66.3 million (496.5 million yuan) in Q307. The company beat estimates (via WSJ) although just barely for revenue; analysts polled by Thomson Reuters (NASDAQ: TRIN) expected earnings of $1.28 per share on revenue of $135 million. The engine was also able to attract more advertisers—and get them to spend more—than in previous quarters. Baidu (NSDQ: BIDU) had 194,000 customers in Q3, up 7 percent from Q2, and up almost 36 percent year-over-year. Average revenue per customer came in at 4,700 yuan ($692), up 6.8 percent from Q2 and up 34 percent year-over-year.

Thomson Reuters Plans ‘Relentless’ Cost Cutting In Downturn, Still Optimistic — Thomson Reuters has promised to “relentlessly” cut costs as the global economy begins to bite its clients’ businesses and, with them, its own. Devin Wenig, CEO of the markets division that includes Reuters Media and Reuters.com, yesterday told staff, in a frank internal memo obtained by paidContent:UK: “Many of our big customers are struggling and there is talk of a global recession. We are in a period of unprecedented change that seems to be unfolding in real time… The changes we are witnessing are global and deep and this is very different to a cyclical downturn.”

Articles of the Day

Posted in Digital Media, News with tags , , , , , , , on August 7, 2008 by Dave Liu

Google To Take On Baidu’s Music Site — Google, the worldwide leader in search, is taking on Baidu.com, the undisputed No.1 in China, by launching its own music search site — except this one only points users to music that’s legal to distribute. The site, which is only available to Chinese users, points to songs hosted by Top100.cn, a Chinese music site backed by NBA star Yao Ming. It will be ad-supported, with Top100.cn sharing the ad revenue with its music partners. Ars Technica says the move is a direct response to Baidu’s dominance of the music search market. The Chinese search leader has made a name for itself providing deep links to endless quantities of illegal music. Recently, the Music Copyright Society of China and the International Federation of the Phonographic Industry (IFPI) questioned Baidu for its MP3 deep-linking policies in lawsuits filed against the search engine for enabling copyright infringement. Three labels represented by the IFPI seek a maximum of $9 million in damages, though the organization claims Baidu could be forced to pay billions in reparations.

AOL Split On Track, But Options Open On Sale Of Access; Prudent Aquisitions — Time Warner is making good progress, says CEO Jeff Bewkes, on curating the proper portfolio of assets. Cable is obviously on track and the deal to spin it fully off should be done by the end of the year. On AOL: “We’ve now made key financial and strategic decisions that will enable us to operate the access and audience.” But it still sounds a tad murky: assets of the company has been divided into three categories: access, audience and something called shared services. TWX will pursue prudent acquisitions, but only ones that provide a meaningful financial return, and one that’s superior to other uses of cash. Given the low share price, it will be difficult to find acquisitions, says Bewkes, that will be superior to just buying back stock. That being said, given all the financial changes the company is undergoing, buybacks are currently on pause. Following the big one-time dividend from TWC? Same. Prudent acquisitions if possible, but expect more cash returned to shareholders.

WebMD Q2 Revs Up 15 Percent; Income Up 25 Percent; Pharma Ads Coming Back?— Health portal WebMD reported revenue of $89.2 million, a 15 percent increase from $77.3 million in the year-ago quarter. Net income from continuing ops of $6.4 million ($.11 per share) were up 25 percent from last year’s $5.1 million ($.09 per share). The company’s core segment, online services, had revenue of $84.6 million, up 16 percent from last year. That was mainly due to 19 percent growth in advertising and sponsorship revenue. Earlier this year the company lowered its outlook for the year due to advertiser hesitance and the business climate, but in the announcement the company simply maintains the forecast. As for the company’s merger with HLTH, it currently expects the deal to close in October.

Bebo Write Down Looms For Time Warner — AOL, which continues to weigh down Time Warner’s stock and may soon be sold, could be forced to write down its recent acquisition of Bebo, says Silicon Alley Insider’s Peter Kafka. In its most recent SEC filing, Time Warner reveals that $760 million of the $857 million it paid for Bebo price was attributable to goodwill, while another $86 million went to “specific amortizable intangible assets.” That leaves $11 million for the actual company. In other words, says Kafka, “there’s almost no there there.” Goodwill represents the premium AOL paid for the social network. It was almost all premium. Now, this may be standard practice in the Internet biz, but sometimes, when the asset doesn’t deliver as promised, the acquirer is forced to come back and tell investors that it paid way too much, then it gets to write down the loss. Time Warner had to do this with AOL in 2003. EBay had to do this with Skype in 2007.

CondéNet Integrates Ad Sales Teams; Staff Reorg Focuses On Verticals, Not Titles –Times are getting a little tougher for online ad revenues. And so with marketers’ demands for one-stop shopping across a company’s sites getting louder, CondéNet has decided to simplify its two ad sales teams into one. Up until now, there was one team handling ads for Style.com, Men.Style.com, and flip.com, and a separate sales team selling Epicurious.com, Concierge.com, NutritionData.com, HotelChatter.com and Jaunted.com. While categories like food, travel, fashion and teen, focus on different subjects, the reasoning is that the broad audience demos they attract make it more worthwhile to explore where visitors to those sites intersect. And so, sales staff will operate according to particular verticals, not titles.

Baidu: “We’ve Seen This Movie Before”

Posted in China, Deals, Digital Media, Investment Banking, Media, News with tags , , , , , , , , , , , , , , , , , on August 11, 2005 by Dave Liu

I was interviewed for the following article which was written by Steve Rosenbush and published by Business Week on August 11, 2005.

Investors hope it’ll be another Google, says China tech banking expert David Liu. But he warns that it’s “hard to pick winners in tech” The initial public offering of Baidu (BIDU ), the Chinese Internet search company, shattered records on Aug. 4. It was the most successful Nasdaq IPO in five years, rising from $27 to $154. While the stock price has settled back at $91, the company has recast the perception of the Chinese Internet market. Valuations of Internet companies, and search companies in particular, are on the rise.

Now, big players from the U.S. are pouring into the Chinese market. Google (GOOG ) has a stake in Baidu. Yahoo! (YHOO ) is said to be in talks with e-commerce site Alibaba, eBay (EBAY ) has acquired Eachnet, and MSN has its own operations in China (see BW Online, 8/11/05, “There’s More Where Baidu Came From”).

David Liu, managing director of China tech banking at Jefferies & Co., expects valuations to keep rising in the wake of the Baidu IPO. He spoke about the Chinese tech market with BusinessWeek Online Senior Writer Steve Rosenbush. Here are edited excerpts of their conversation.

Q: How would you characterize Baidu’s valuation?

A: By any conventional standards, the valuation looks very high. Its valuation is higher than Yahoo, Google, or eBay. To justify this valuation, Baidu needs to grow faster than Google.

Q: Why did Baidu’s value reach its current level?

A: The valuation of Baidu was driven by a “perfect storm” of investment conditions. There haven’t been that many IPOs, and the market is starved for good growth ideas.

Lots of investors have been kicking themselves because they didn’t buy Google when it was in the 80s. It’s 300 now. We’re also seeing rapid growth of the China market. It’s a very large opportunity. It’s the second largest Internet market in the world, and over the next two years, pundits believe, it will become the largest Internet market in the world.

The valuation of Baidu was also driven by the rapid growth of online advertising and revenues related to search. And the nice thing about Baidu is we’ve seen this movie before — in the U.S. Everyone believes the same movie is going to play out in China and that Baidu will do as well as Google.

Q: But is the current valuation justified?

A: The company hasn’t disclosed forward-looking revenue numbers. The analysts who worked on the deal are in a quiet period, and we won’t see anything from them until 40 days after the IPO, or early September. Those reports will show their view on Baidu’s projections. Once the numbers come out, we can figure out whether the company’s projected growth justifies its current valuation.

Q: How will the Baidu valuation alter the outlook for M&A and IPOs in China?

A: There’s no doubt the Baidu IPO will affect companies that are in a related space, like Alibaba. Any Chinese search company today is going to look at the Baidu situation and start thinking more about launching an IPO than pursuing an M&A.

Baidu will have an effect on the broader market, too. There are only 30 China-based tech companies on the Nasdaq. That’s a very small sample, so every single deal has a meaningful impact on expectations. If you’re a China-based tech company looking to sell or go public, an event of this magnitude heavily skews that sample and what you think the value of your company is. In my opinion, the Baidu IPO pushes valuations beyond the point where many M&A deals can get done.

Baidu clearly affects companies with one degree of separation — those that are rivals of Baidu. And it affects the valuation of Internet companies, or companies with two degrees of separation. They will argue that they make their money by monetizing traffic, just like Baidu.

Tech companies, which have three degrees of separation, will argue that they’re tech market leaders, just like Baidu and deserve a similar valuation. And companies with a fourth degree of separation, which operate beyond the tech market, will argue that they deserve a valuation comparable to Baidu, too. But I think these arguments lose credibility unless the company is a search company or an Internet company.

Q: Can you be more specific about how Baidu will change the outlook for M&A and IPOs in China?

A: Baidu will have the biggest impact on search companies like Sina and Zhongsou, which compete directly with Baidu. It also may have an effect on companies like Alibaba, the b2b site. While Alibaba may be in talks with Yahoo, it’s unlikely to sell out entirely. It may sell a piece to Yahoo, then go public, just as job site eLong sold a piece to Barry Diller’s IAC/Interactive before it went public. [eLong was acquired by Interactive and is now part of spinoff Expedia.]

We’ll see more two track deals like this. M&A is difficult in any market growing this fast because the seller thinks it’s going to keep growing like crazy, and the buyer thinks expectations are too high.

Other companies on the cusp of M&A or IPO include China HR, the job site. Rival job site 51job (JOBS) went public last year. It was the second-best performing IPO on the Nasdaq. Another job site, Zhaopim, may also be close to IPO or deal. The same is true for Soufum, the real estate site. But once you get beyond search and Internet sectors, the influence of the Baidu IPO really starts to wane.

Q: Is there a danger that an M&A/IPO bubble is forming in the China market?

A: Valuations are based on a company’s future growth. If these companies perform well, the valuations will be justified. If they don’t, valuations will come down. That’s why quarterly performance is so important. These kinds of businesses are so new in China.

But there will be a new Google, a new Yahoo, and a new Microsoft that comes out of China. And these market leaders will justify their valuations. But these companies are relatively small, and it’s hard to pick which ones will be winners. That’s why investors get paid so much money. It’s particularly hard to pick winners in tech, which tends to be a winner take all market.

Q: Will Baidu be a winner?

A: It has the lead right now, but someone else could come along. Google wasn’t the first search company in the U.S., or even the second or the third. And most of those early leaders aren’t around today.

There’s More Where Baidu Came From

Posted in China, Deals, Digital Media, Investment Banking, Media, News with tags , , , , , , , , , , , , on August 11, 2005 by Dave Liu

I was interviewed for the following article which was written by Brian Bremner and Justin Hibbard and published by Business Week on August 11, 2005.

The search engine’s runaway stock may spur Chinese Net IPOs — and rein in M&A as companies’ ideas of their own valuation soar How do you say feeding frenzy in Chinese? The moon shot of an initial public offering by Chinese Internet search engine Baidu.com (BIDU ) — whose $27-a-share launch on Aug. 4 jumped fivefold, to $154, before settling back to around $90 — shattered a five-year record for the best debut on the Nasdaq. It tapped into a deep investor hunger for the next Google (GOOG ) — which has seen its shares triple in the past year — and a desire to profit from the Internet in China, where some 100 million people now go online.

So will Baidu’s success unleash a flood of China Net IPOs? There’s good reason for excitement. Broadband subscribers in China last year more than doubled, to 43 million, and Beijing technology research firm BDA China is forecasting the online advertising market, worth $208 million in 2004, will expand to nearly $1 billion by 2009.

IPO INSPIRATION

Although the stampede into Baidu is partly based on the search engine’s similarity to Google, it also reflects optimism about that potential growth. That’s why many analysts are bullish on Chinese Internet companies. “We will see an expansion of the valuations. Baidu helped that,” says Piper Jaffray analyst Safa Rashtchy.

Indeed, some Chinese tech companies that have been considering a flotation might now jump in. “Given the success of Baidu, I’m sure some other Google look-alikes will be inspired to [do an] IPO,” says Khiem Do, head of Asian equities at Baring Asset Management.

At the same time, Baidu’s offering could put a damper on a wave of mergers and acquisitions among Chinese Net companies that had been picking up. Yahoo! last year paid $120 million for control of Beijing 3721 Technology Co., and it now appears to be close to a $1 billion deal to buy a one-third stake in Alibaba.com, an online marketplace for small and midsize Chinese companies.

“CROWD PSYCHOLOGY”

And in February online game pioneer Shanda Interactive Entertainment bought a 19% stake in portal Sina.com. After Baidu’s performance, however, Chinese Net entrepreneurs may believe their companies are worth more than potential acquirers are willing to pay. “The Baidu IPO pushes valuations beyond the point where many M&A deals can get done,” says David Liu, a managing director at investment bank Jefferies & Co. (see BW Online, 8/11/05, “Baidu: “We’ve Seen This Movie Before””).

All this doesn’t mean Baidu truly warrants its own sky-high valuation. Baidu, co-founded five years ago by former Infoseek engineer Robin Yanhong Li, is the mainland’s No.1 search engine, with 45% of the market. But the company earned just $1.45 million on $14 million in sales in 2004. At $90 per share, Baidu’s market capitalization is nearly $3 billion — which values it at more than 1,800 times 12-month trailing earnings, compared with price-earnings ratios of 70 or so for Google and Yahoo.

And Baidu faces intense competition. Its rivals include well-heeled U.S. search providers such as Google (which owns 2.6% of Baidu), smaller Chinese search sites, e-commerce players like Alibaba, and portals Netease, Sina, and Sohu. “We are in the realm of crowd psychology,” says Duncan Clark, BDA’s managing director.

WHO GETS BITTEN?

Investors might also note that the record of Chinese Net stocks has been mixed. Of the 10 Chinese tech companies that went public last year, 7 are trading below their offering price. Online 51job Inc., which went public at $14 in September, 2004, zoomed to $55 before falling to its current $13.

The one exception: Shanda Interactive, the best-performing stock on the Nasdaq last year. It went public in May, 2004, at $11 and now trades at $37.50, up 241%. Although Baidu’s IPO boosted some of the laggards, they quickly fell back to where they were before the IPO. In a feeding frenzy, it seems, someone always gets bitten.