Baidu Stock: Let's Mark Down the World

Source: Baidu. 

Baidu  wants to dominate more than just its home market. China's leading search engine announced last week that it had acquired a controlling stake in Peixe Urbano, a Brazilian online discounter with more than 20 million customers. Baidu's new online-discounting toy has more than 30,000 merchants offer up wares that are only available at a deep discount for a few days. 

Group-buying websites have fallen out of favor in most markets outside of China where dot-com darling Vipshop continues to make waves with heady growth and spectacular returns. Analysts see Vipshop's revenue soaring 115% this year with earnings growing even faster than that. The stock has more than doubled this year after more than quadrupling in 2013. That's saying something in a market where many Chinese Internet stocks outside of Baidu have been volatile and disappointing. 

Vipshop in China has been a bit of an anomaly in the realm of group-buying sites. Stateside, Groupon leads the pack, but it's been a bleeder for investors. The flash sale giant went public at $20 less than three years ago, and it has gone on to shed 70% of its value. That's what happens when dreams of international expansion don't pan out with margins and profitability failing to live up to expectations.  

Is Peixe Urbano more like Vipshop or more like Groupon? That remains to be seen since we don't have audited financials. Neither company is revealing how much Baidu is paying or how much of a stake the Chinese speedster is acquiring in Peixi Urbano. We simply know that it's sizable enough to be a controlling stake. 

Around the world
Baidu has tried to broaden its global reach for years. Since rolling out its search platform in Japan more than six years ago, Baidu has taken steps to diversify into markets outside of its home turf where it continues to serve a majority of China's search queries.

The global push and expanding into new online categories in China hasn't come cheap. Net margins have slipped since peaking at 47% in 2012, though even recent levels of nearly 30% are enough to make most Internet companies envious.

The end result has been worth it. Baidu's balance sheet is flush with more than $7.8 billion in cash and equivalents as of the end of June. It wouldn't be a surprise to see it continue to snap up other potentially promising Internet companies, particularly in Latin America which is expected to see the online market grow at a faster clip than more established territories. 

Baidu set up camp in Brazil two years ago, opening an office in 2012 before starting to offer free Web services last year. It finally rolled out a Portuguese version of its search engine for Brazilian users this summer. The ultimate goal is to be a bigger player overseas. It's never going to turn its back on China. There have been enough new initiatives there -- from app marketplaces to online travel -- to confirm that it will continue to lean heavily on its operations in the world's most populous nation. It also hasn't been as successful in overseas markets as it has been when it's the home team. However, the global diversification helps Baidu improve its risk profile and the potential to generate incremental revenue is a nice bonus. There's a big world out there, and Baidu wants to be a part of it.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu. The Motley Fool owns shares of Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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