Baidu maps out long-term success with Uber investment
Two of China’s tech giants have spent 2014 funding the spending habits of their respective taxi hailing apps, as they fight for market share without consideration of profits. Alibaba’s Kuaidi Dache and Tencent’s Didi Dache have been offering subsidies to both taxi drivers and passengers, in order to gain market share.
While this has subsided somewhat, both tech giants have just toned down their aggressive market share gaining strategy – as opposed to focusing on actually generating meaningful revenue. While these two battle with domestic apps, Baidu, another Chinese tech giant, has reportedly bought a minority stake in Uber, which may be worth as much as $600 million.
Baidu seems to be taking steps to both mitigate this risk and expand its Baidu Maps service overseas by partnering with Nokia Here in order to power the desktop and mapping services for Baidu Maps outside of China. While this implies that Baidu is looking to shore up its mapping services without using a rival’s content, the most important implication is that Baidu is targeting overseas markets where both Google Maps and Apple Maps are dominant. The short-term strategy for Baidu will be to cater for Chinese tourists and Mandarin speakers overseas, but I expect that we will eventually see Baidu release versions in other languages, as it has done with its search engine.
Management and risk description
I have given the trade a three-month trade view, because it will cover the fourth quarter earnings release expected at the start of February. Baidu has a consistent record of beating earnings estimates, so the risk from the earnings release shouldn’t be great.
Time horizon: Three months
— Edited by Robert Ryan
For more on equities, click here.
Non-independent investment research
This investment research has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Saxo Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. » Read more