In this article, I am Alphabet Inc. (NASDAQ: GOGLUnited States and Baidu, Inc. from (“Google”)NASDAQ: BIDU) from China with a purely fundamental view. I believe both companies are interesting in the long run. Investment opportunity based on fundamentals; In mine Previous article On Meta Platforms (META) and Tencent (OTCPK:TCEHY) I will be doing a detailed analysis of all these companies in future articles. But before studying those points, All of these companies that I will discuss are cloud computing, As we are well placed in markets like metaverse and artificial intelligence, we would like to provide a more complete overview for our readers.
Please compare the financial metrics of the companies after 12 months below:
As I mentioned in my previous article, I believe that the share of R&D spend and buybacks is an important metric for these well-established companies. These two metrics tell us how much money these companies are investing in innovation and their platforms, and how much they are spending to buy back their common stock and reduce the number of shares outstanding on the open market.
Examining Google and Baidu Fundamentals and Growth Strategies.
Google search engine is the preferred search engine used by most people in the western world. Thanks to its advertising revenue, the company has earned $282 billion in revenue over the past 12 months. Google diversifies its revenues by competing as the world’s third-largest cloud provider behind Amazon’s ( AMZN ) AWS and Microsoft’s ( MSFT ) Azure. As it currently relies heavily on its advertising revenue, This is an important market for Google, and advertising revenue is estimated at approx. 90% of gross income. Also, the global cloud market is expected to grow to a market value of approx. $1.2 trillion by 2027.
Google has a veritable fortress on its balance sheet, with $116 billion in cash equivalents and nearly $30 billion in debt. The company generated $63 billion in broad-based free cash flow during the 12-month period. This allows the company to repurchase large amounts of its common stock. For reference, Google spent $57 billion on share buybacks in the last 12 months. Shareholders must be happy because there are so few shares outstanding in the open market. It is important to note that this is where Google falls short. 40% from its all-time high; This is a great opportunity to redeem shares from the open market at a significant discount.
Google spends significantly on R&D, spending $38 billion during the TTM period. It is the company’s cloud computing, Google search Help improve YouTube etc. Not only does Google already have very strong fundamentals; Management also continues to make investments, allowing them to take advantage of markets like these. cloud computing market. Google is currently the closest by market value. $1.2 trillion; It ranks among the five most valuable companies in the world. That doesn’t mean the company can’t see its value appreciating; Google recently had a market value of over $2 trillion. So can we see the company at that level again? I believe this is very possible; But this is a long-term game. In the current market environment, investors can expect some austerity in the market for some time.
BIDU is known as the Google of China. It is the leading search engine for a country of over 1.4 billion people. This alone makes BIDU a significant player in China’s tech sector, but BIDU is more than just a search engine; It is also the fourth largest cloud operator in China’s cloud industry.
revenues, In terms of cash flow from operations and market valuation, BIDU remains undersized compared to the two largest tech companies in China, Alibaba (BABA) and Tencent. With TTM revenue of $17.4 billion and operating income of $3.2 billion, the market values the company at $39.5bn. This is the closest. 12x operating cash flow and 2.5x sales. BIDU’s size should not worry investors, as the company is well positioned to take advantage of the digital advertising market in China. This market is set to grow to $190 billion by 2026. And BIDU has a long runway ahead, as it is a significant player in China’s cloud industry, which is expected to grow from $13 billion in 2020 to $84 billion by 2027. .
For BIDU, the cloud computing segment is very important as it helps the company diversify its revenues, which are heavily dependent on advertising revenue. For reference, BIDU ad revenue is approximate. 77% of total revenue. BIDU’s size shouldn’t worry investors, as the company is well-positioned to take advantage of the global AI market, which is expected to grow to more than $400 billion by 2028. The potential of these three markets provides a good growth runway ahead for BIDU. Management ensures the company takes advantage of these markets by spending nearly 20% of revenue on R&D, which is its search engine; It’s a good sign that they’re investing in artificial intelligence and cloud computing capabilities. Finally, BIDU has a net cash position and has been repurchasing $764 million of its shares over the past twelve months, signaling that management believes the company is undervalued. Don’t forget that BIDU share price is down 60% from its all-time high.
Competition: Both Google and Baidu compete in their domestic search engine cloud computing markets and have large, established companies vying for market share. We can expect fierce competition in the coming years.
Dependent on advertising revenue: Both Google and Baidu generate a significant portion of their revenue from advertising. In Google’s case it is approx. 90% of gross revenue; For BIDU it is around 77% of the total revenue. This is important for these companies to diversify their revenue streams as changes in the advertising market can affect their financial performance.
In summary, Google and BIDU are leading technology companies with strong financials and focus on innovation and expansion into high growth markets. Google is dominant in the search engine and cloud computing markets and has done a good job of starting to diversify its revenue streams by expanding into the cloud market. Baidu followed a similar path by becoming a major player in China’s cloud computing market. Although it lags behind other Chinese tech companies such as BABA and TCEHY in terms of revenue size and market valuation, it is well positioned to take advantage of growth in the digital advertising and cloud markets in China.
Both Google and Baidu, like any other tech company, face challenges and challenges, but their strong finances and dominant positions in their respective markets allow them to maintain their long-term growth paths.
Editor’s note: This article discusses one or more securities that are not traded on a major US exchange. Be aware of the risks associated with these stocks.