Reports are circulating that Best Ideas Newsletter portfolio holding Baidu (click ticker for report: ) is interested in taking a controlling stake in Renren’s (RENN) daily deal site Nuomi.com, as well as Ding Ding Maps (a map service).
Both potential deals could make Baidu look a little more like another Best Ideas portfolio holding, Google (click ticker for report: ). Numoi.com is a daily deals site similar to Groupon (click ticker for report: ) and Amazon’s Living Social (click ticker for report: ), as well as Google’s own Daily Offers. Deals change on geographic location, and the service seems to cover most major cities in China. Without question Baidu could probably start its own daily deals service, but that strategy hasn’t worked phenomenally well for Google, in our view, so it may make sense to buy a brand name with a built-in following.
Further, Baidu likely won’t have to make the same sort of blockbuster offer that Google made for Groupon, as Renren has struggled considerably since becoming a public company. After it IPO’d in the US to great fanfare in 2011, Renren’s shares have fallen over 70%. The firm was once billed as the Chinese equivalent of Facebook (click ticker for report: ), but we haven’t seen the same explosive revenue growth that Facebook has experienced. While its website is incredibly similar, the lack of global reach will keep its addressable market smaller, but certainly not small on an absolute basis.
Regardless, even if Baidu purchases a controlling stake in Nuomi.com or purchases Ding Ding Maps, we doubt either event will have an impact on Baidu’s intrinsic value. Baidu continues to grow a mountain of cash, so earning some return on otherwise idle capital could be marginally positive. For perspective of how small the deal would be, Nuomi.com generated $5 million in revenue during its first quarter compared to the $7.5 billion figure Baidu generated during its most recent quarter.
Valuentum’s Take
Ultimately, we may see Baidu successfully mimic several of Google’s strategies since Google mostly doesn’t compete in China, but also because Google has done tremendously well building a powerful brand and company. Baidu recently reported strong second quarter results and recently scored a rare 10 on the Valuentum Buying Index. The firm remains a position in the portfolio of our Best Ideas Newsletter.