Articles by mgedwards

Should you Baidu?

On August 5, Baidu.com will
list ADSs (American Depository Shares) on NASDAQ (symbol BIDU). 
Baidu, which means "100 levels" in Chinese, is China’s largest search
engine and the 7th most globally trafficked Web site.  Privately
Baidu will only float about 3.7 million shares and will IPO between $19
and $21 per share.  It is a highly anticipated public offering,
and it will likely IPO at $21/share and will rise quickly on the
first day of trading.  Because the underwriters are CSFB and
Goldman Sachs, it will be a traditional IPO.  Thus, average Joe’s
like myself will be locked out of this IPO opportunity (I am a strong
proponent of auction IPOs because traditional IPOs participants are
typically limited to institutions, high net-worth investors, and
special guests). 
 
I’ve been mulling over buying some shares at the outset, likely at
a higher price than the initial price of $19-$21.  This investment
is a very risky one, but there is a tremendous amount of potential
that Baidu will be a stellar buy.  First, the negatives.  If
Baidu.com’s ADRs list at $20 per share, the price-to-equity ratio for
BIDU shares will be 528.  This is far, far higher than the P-E
ratio for any major tech stock, including Google.  It is very
overvalued–on paper.  The question is whether a small,
market-leading company in the world’s fastest growing Internet market
will expand quickly, bringing down the P-E ratio.  Secondly,
Baidu.com is the search engine leader for China, beating out Sina.com
and Sohu.com, two other larger, older China Internet plays. 
It is very much like Google, with a spartan, no-frills interface. 
However, Google is quickly making inroads into China and is especially
popular among Chinese who speak foreign languages.  Google is the
800-pound Gorilla of search, and there’s a big risk that Baidu will
lose its place as the king of Chinese search.  Thirdly, the
Chinese Internet market is growing, but volatile both financially
and politically.  While Internet search in China is growing
by leaps and bounds, this nascent market is fraught with risk. 
It’s still unclear whether search will be a very profitable endeavor in
the Chinese market.
 
Now for the upside.  This IPO will be HOT.  For those
who missed out on the Google IPO, Baidu.com will be a second chance to
get in on the ground floor of the fast-growing Internet search
market.  Initial buyers will disregard the sky high P-E
ratio.  The question is–at what price is it savvy to buy shares,
and at what price is it foolish?  Secondly, Google owns 2.6% of
Baidu.com, indicating that global search leader Google highly
regards Baidu’s growth prospects.  It has been speculated
that Google will buy Baidu outright to quickly enter the
Chinese search market.  However, it’s also been noted that Google
may opt to go it alone, making Google a formidable competitor to
Baidu.  Also, Chairman & CEO Robin Li and others will
continue to own a large majority of shares after IPO.  I believe
it’s good when a company’s executives have their wealth tied
to their company, because they have a personal interest in their
company’s success.  Plus, they lock away shares, discouraging
share dilution.  Thirdly, at present it appears that Baidu’s
Internet search engine technology is superior in terms of handling
Chinese search.  Chinese characters are unicode, not ASCII. 
As a result, Google and other potential competitors must built of their
unicode search indexes.  In this respect, Baidu is at the
forefront and should dominate Chinese language search, at least in the
next few years.  Chinese who speak only Chinese will prefer
Baidu’s search capabilities.  Google would do well to buy Baidu
and incorporate it as its unicode language (primarily East and
Southeast Asian languages) search engine.  (Google recently opened
a research center in Shanghai to beef up its unicode search, but it is
currently embroiled in a legal dispute with Microsoft for hiring away
one of its top Chinese executives.) 
 
In short, I plan to buy Baidu.com ADRs shortly after IPO.  I
think it will be a great long-term buy, at least in Internet
time.  I have that same good feeling I had with a couple of other
choices, including Google, Morningstar, and Cogent Technologies. 
But I will not buy Baidu if the price exceeds $25 at open. 
Keep in mind, some risky bets turn sour.  Last week Infospace, a
stock I own, announced its 2Q results.  Although it beat analyst
expectations by 6 cents per share, it slashed its outlook for the rest
of the year dramatically.  The stock dropped 35% in one day. 
I didn’t lose too much because I didn’t have a big stake, but it
reminded me that investing can be risky.  In the case of
Infospace, nothing could have indicated they would revise their
forecast by so much.  Most analysts rated them a buy, and in the
aftermath most analysts changed their ratings from buy to hold or sell
and slashed their price target by about $20.00.  I feel that
Infospace mislead investors and analysts and opened themselves up to
shareholder lawsuits.  If there are any class action lawsuits, I
would definitely sign on.  What Infospace did shafted share
holders.  My recommendation changes to a strong "Don’t buy"
if you don’t own Infospace shares.
 
Here are some research links if you would like to research the upcoming Baidu IPO further:
 
 
In case Internet search is not of interest to you, you could also
invest in Tim Hortons, a staple in Canada.  Known for its donuts,
Tim Hortons is very popular north of the border and in the northern
U.S.  Wendy’s International, parent company of the hamburger
chain, owns Tim Hortons and will spin off up to 18% of Tim Hortons in
an initial public offering.  I haven’t looked at the
company’s financials to see if it will be a good investment. 
Fortunately, it is not a tracking stock, and Tim Hortons has a cult
following similar to Krispy Kreme.  Krispy Kreme, which in my
humble opinion makes much tastier donuts, used to be a darling stock
until it over-expanded and was caught doing shady account.  If Tim
Hortons financials are sound, and it has a realistic expansion plan
into the U.S. and elsewhere, it could be a decent buy.

When it rains, it pours

I knew it was going to be a crazy day when I stepped outside today.  I rushed to catch the shuttle and didn’t have time to grab an umbrella.  I knew it was raining, but I didn’t realize just how torrential it was.  I have not seen such a heavy downpour for ages!  It literally seemed as if someone had turned on heaven’s faucet.  I rushed out to the shuttle stop not far from our home, and within moments I was drenched.  I had no where to go but inside the shuttle stop shelter, and I had to wade through a swallow lake of water to get there.  I was soaked from head to toe.  I stood inside the shelter and waited for the shuttle to arrive.  In the meantime, I heard thunder claps nearby.  Oh great, I thought wistfully.  Here I am standing over a lake, soaking wet, and in the middle of a lightning storm.  I hadn’t felt so nervous since I was on a salty beach on Antelope Island at the Great Salt Lake in Utah, a mile from my car, running back to it and watching in awe as a lightning storm approached.  I felt like a cornered, drowned rat.  The shuttle was late, battling the rain.  When it finally arrived, I had no choice but jump back into the lake of water and wade through it to the waiting shuttle bus.  What a miserable start to a very long day.
 
After that, the day didn’t get much better.  I put out a few proverbial fires at work and hustled to catch a car to Daejeon with my Korean translator.  We drove in the pouring rain down to Daejeon to visit with some Americans held there.  I spent about an hour with them, gathering their requests and ensuring they were treated well.  Then, after a brief lunch, we drove back to Seoul.  It was an all day endeavor visiting Daejeon, and I didn’t get home until 7:30 tonight.  (Daejeon is about two-and-a-half hours south of Seoul on Interstate 1.)  The trip was even slower than expected because driving visibility was so poor.  We almost had to drive from Daejeon to Incheon tonight to do something important, which would have brought me home after 9 p.m.  I wish I could say that not going to Incheon today was a welcome change.  Unfortunately, not going to Incheon today means that I will have to wait until Tuesday to finish something important.  If I had gone to Incheon today, it would have been done tomorrow.  Now I have to wait four more days to get it done.  When I got home tonight, I was contacted by the person I was supposed to meet in Incheon.  Sometimes work finds you!  I wish the work always ended when I left the office, but sometimes it follows you homes.  Cases are piling up, and tomorrow I have a stack to work on in the office.  The sound of pouring today was not merely caused by rain.  It was also the sound of work raining down on me.  I can’t wait until next Tuesday, when this latest round of issues is resolved.

A matter of perspective

A comment by newcomer ma posted on yesterday’s blog entry got me thinking about relationships between Koreans and foreigners.  Thanks for your perspective–I really appreciate it.  As always, I enjoy hearing other people’s experiences in Korea.  I only have one perspective, my own.
 
I pondered ma‘s comment mentioning how easy it is to befriend Koreans.  This got me wondering as to why people can have such different perspectives the same subject.  My perspective on Koreans is a bit different.  When I write that I find Koreans to be the most wonderful yet elusive people I’ve ever encountered, I realize that this assessment is only based on what I’ve encountered here since I arrived earlier this year.  I talked to my wife tonight, and she says that her perspective is different from mine.  She finds Koreans very easy to befriend.  She is a Chinese American, so the Asian perspective she shares with Koreans likely helps her better relate to Koreans.  On the same token, she has had some difficulty befriending American in the United States (her husband excepted, of course).  A friend of ours, who is in her third trimester of pregnancy with a toddler and has had some bad encounters in Seoul, says that she finds Koreans somewhat rude.  Another colleague who is single, male, and handsome says he has no trouble befriending Koreans.  Americans in trouble in Korea that I have assisted tend to have a negative view of Koreans.  However, at the same time I see many Americans interacting with Koreans, and I know that thousands of Americans and Koreans marry each year.  I’ve met and read the blogs of foreign English teachers who generally have a wonderful experience with Koreans.  It’s an interesting dynamic.
 
I am a Caucasian, married, professional male.  On most days, I wear a business suit.  I interact with Koreans primarily at work, both customers and coworkers, and at night I usually return home to spend time with my family.  My job gives me a good insight into the Korean psyche.  On weekends my time is usually preoccupied with family activities, including getting together with friends.  Unfortunately, I have very little time to meet new people, so in a way, my own situation hinders me from meeting and befriending Koreans.  I am a very gregarious and open person, and I believe my demeanor does help me get to know Koreans better.  I suspect that my lack of time and opportunity, as well as the fact that I am in a job where I often act in an official capacity, hinder my ability to develop strong friendships with Koreans.  I wish it weren’t so.