Intrinsic value of Baidu ADR - BIDU

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$179.33

  Intrinsic Value

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  Value-price divergence*

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$179.33

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of BIDU stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 62.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.28
  35.30
  32.27
  29.54
  27.09
  24.88
  22.89
  21.10
  19.49
  18.04
  16.74
  15.56
  14.51
  13.56
  12.70
  11.93
  11.24
  10.61
  10.05
  9.55
  9.09
  8.68
  8.32
  7.98
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
Revenue, $m
  10,207
  89,815
  118,798
  153,895
  195,583
  244,243
  300,155
  363,496
  434,350
  512,720
  598,544
  691,707
  792,063
  899,448
  1,013,694
  1,134,645
  1,262,162
  1,396,136
  1,536,492
  1,683,194
  1,836,249
  1,995,704
  2,161,655
  2,334,238
  2,513,635
  2,700,070
  2,893,806
  3,095,149
  3,304,441
  3,522,063
  3,748,432
Variable operating expenses, $m
 
  65,830
  86,576
  111,698
  141,539
  176,371
  216,393
  261,732
  312,450
  368,548
  429,981
  495,129
  566,964
  643,831
  725,609
  812,187
  903,464
  999,364
  1,099,832
  1,204,842
  1,314,400
  1,428,539
  1,547,328
  1,670,864
  1,799,278
  1,932,729
  2,071,407
  2,215,529
  2,365,342
  2,521,117
  2,683,153
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  8,753
  65,830
  86,576
  111,698
  141,539
  176,371
  216,393
  261,732
  312,450
  368,548
  429,981
  495,129
  566,964
  643,831
  725,609
  812,187
  903,464
  999,364
  1,099,832
  1,204,842
  1,314,400
  1,428,539
  1,547,328
  1,670,864
  1,799,278
  1,932,729
  2,071,407
  2,215,529
  2,365,342
  2,521,117
  2,683,153
Operating income, $m
  1,454
  23,985
  32,222
  42,196
  54,044
  67,873
  83,762
  101,763
  121,900
  144,172
  168,562
  196,578
  225,099
  255,617
  288,085
  322,458
  358,698
  396,772
  436,660
  478,352
  521,849
  567,165
  614,327
  663,374
  714,358
  767,341
  822,400
  879,620
  939,099
  1,000,946
  1,065,278
EBITDA, $m
  2,658
  29,081
  38,466
  49,830
  63,328
  79,084
  97,188
  117,697
  140,639
  166,015
  193,804
  223,970
  256,464
  291,235
  328,227
  367,390
  408,679
  452,059
  497,505
  545,007
  594,564
  646,195
  699,929
  755,810
  813,898
  874,264
  936,994
  1,002,188
  1,069,955
  1,140,419
  1,213,716
Interest expense (income), $m
  161
  1,188
  2,009
  3,025
  4,254
  5,715
  7,420
  9,380
  11,599
  14,082
  16,828
  19,836
  23,100
  26,617
  30,380
  34,384
  38,622
  43,090
  47,785
  52,704
  57,844
  63,208
  68,795
  74,611
  80,658
  86,945
  93,478
  100,267
  107,322
  114,656
  122,282
Earnings before tax, $m
  2,099
  22,797
  30,213
  39,172
  49,789
  62,157
  76,342
  92,384
  110,300
  130,090
  151,734
  176,742
  201,998
  229,000
  257,705
  288,075
  320,076
  353,682
  388,875
  425,649
  464,005
  503,958
  545,532
  588,764
  633,699
  680,396
  728,922
  779,353
  831,777
  886,290
  942,996
Tax expense, $m
  421
  6,155
  8,158
  10,576
  13,443
  16,783
  20,612
  24,944
  29,781
  35,124
  40,968
  47,720
  54,540
  61,830
  69,580
  77,780
  86,420
  95,494
  104,996
  114,925
  125,281
  136,069
  147,294
  158,966
  171,099
  183,707
  196,809
  210,425
  224,580
  239,298
  254,609
Net income, $m
  1,602
  16,642
  22,056
  28,595
  36,346
  45,375
  55,730
  67,440
  80,519
  94,966
  110,766
  129,022
  147,459
  167,170
  188,124
  210,294
  233,655
  258,188
  283,879
  310,723
  338,723
  367,889
  398,238
  429,798
  462,601
  496,689
  532,113
  568,928
  607,197
  646,991
  688,387

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  12,998
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  26,330
  108,080
  142,958
  185,192
  235,358
  293,915
  361,197
  437,420
  522,683
  616,992
  720,269
  832,379
  953,144
  1,082,368
  1,219,849
  1,365,397
  1,518,847
  1,680,067
  1,848,968
  2,025,505
  2,209,685
  2,401,569
  2,601,269
  2,808,951
  3,024,832
  3,249,182
  3,482,318
  3,724,607
  3,976,463
  4,238,343
  4,510,748
Adjusted assets (=assets-cash), $m
  13,332
  108,080
  142,958
  185,192
  235,358
  293,915
  361,197
  437,420
  522,683
  616,992
  720,269
  832,379
  953,144
  1,082,368
  1,219,849
  1,365,397
  1,518,847
  1,680,067
  1,848,968
  2,025,505
  2,209,685
  2,401,569
  2,601,269
  2,808,951
  3,024,832
  3,249,182
  3,482,318
  3,724,607
  3,976,463
  4,238,343
  4,510,748
Revenue / Adjusted assets
  0.766
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
  0.831
Average production assets, $m
  2,107
  17,783
  23,522
  30,471
  38,725
  48,360
  59,431
  71,972
  86,001
  101,519
  118,512
  136,958
  156,828
  178,091
  200,711
  224,660
  249,908
  276,435
  304,225
  333,272
  363,577
  395,149
  428,008
  462,179
  497,700
  534,614
  572,974
  612,839
  654,279
  697,368
  742,189
Working capital, $m
  7,762
  -19,849
  -26,254
  -34,011
  -43,224
  -53,978
  -66,334
  -80,333
  -95,991
  -113,311
  -132,278
  -152,867
  -175,046
  -198,778
  -224,026
  -250,757
  -278,938
  -308,546
  -339,565
  -371,986
  -405,811
  -441,051
  -477,726
  -515,867
  -555,513
  -596,715
  -639,531
  -684,028
  -730,281
  -778,376
  -828,403
Total debt, $m
  6,404
  57,397
  86,415
  121,554
  163,292
  212,011
  267,990
  331,407
  402,347
  480,811
  566,738
  660,013
  760,490
  868,004
  982,388
  1,103,484
  1,231,155
  1,365,290
  1,505,815
  1,652,694
  1,805,932
  1,965,580
  2,131,730
  2,304,521
  2,484,134
  2,670,793
  2,864,762
  3,066,347
  3,275,891
  3,493,775
  3,720,416
Total liabilities, $m
  12,981
  89,923
  118,941
  154,080
  195,818
  244,537
  300,516
  363,933
  434,873
  513,337
  599,264
  692,539
  793,016
  900,530
  1,014,914
  1,136,010
  1,263,681
  1,397,816
  1,538,341
  1,685,220
  1,838,458
  1,998,106
  2,164,256
  2,337,047
  2,516,660
  2,703,319
  2,897,288
  3,098,873
  3,308,417
  3,526,301
  3,752,942
Total equity, $m
  13,349
  18,158
  24,017
  31,112
  39,540
  49,378
  60,681
  73,487
  87,811
  103,655
  121,005
  139,840
  160,128
  181,838
  204,935
  229,387
  255,166
  282,251
  310,627
  340,285
  371,227
  403,464
  437,013
  471,904
  508,172
  545,863
  585,029
  625,734
  668,046
  712,042
  757,806
Total liabilities and equity, $m
  26,330
  108,081
  142,958
  185,192
  235,358
  293,915
  361,197
  437,420
  522,684
  616,992
  720,269
  832,379
  953,144
  1,082,368
  1,219,849
  1,365,397
  1,518,847
  1,680,067
  1,848,968
  2,025,505
  2,209,685
  2,401,570
  2,601,269
  2,808,951
  3,024,832
  3,249,182
  3,482,317
  3,724,607
  3,976,463
  4,238,343
  4,510,748
Debt-to-equity ratio
  0.480
  3.160
  3.600
  3.910
  4.130
  4.290
  4.420
  4.510
  4.580
  4.640
  4.680
  4.720
  4.750
  4.770
  4.790
  4.810
  4.820
  4.840
  4.850
  4.860
  4.860
  4.870
  4.880
  4.880
  4.890
  4.890
  4.900
  4.900
  4.900
  4.910
  4.910
Adjusted equity ratio
  0.095
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168
  0.168

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,602
  16,642
  22,056
  28,595
  36,346
  45,375
  55,730
  67,440
  80,519
  94,966
  110,766
  129,022
  147,459
  167,170
  188,124
  210,294
  233,655
  258,188
  283,879
  310,723
  338,723
  367,889
  398,238
  429,798
  462,601
  496,689
  532,113
  568,928
  607,197
  646,991
  688,387
Depreciation, amort., depletion, $m
  1,204
  5,096
  6,244
  7,634
  9,285
  11,212
  13,426
  15,934
  18,740
  21,843
  25,242
  27,392
  31,366
  35,618
  40,142
  44,932
  49,982
  55,287
  60,845
  66,654
  72,715
  79,030
  85,602
  92,436
  99,540
  106,923
  114,595
  122,568
  130,856
  139,474
  148,438
Funds from operations, $m
  4,036
  21,738
  28,300
  36,229
  45,631
  56,587
  69,155
  83,374
  99,259
  116,809
  136,008
  156,414
  178,824
  202,788
  228,267
  255,226
  283,637
  313,475
  344,724
  377,378
  411,439
  446,919
  483,840
  522,233
  562,141
  603,612
  646,708
  691,496
  738,053
  786,465
  836,825
Change in working capital, $m
  816
  -5,179
  -6,405
  -7,756
  -9,213
  -10,754
  -12,357
  -13,998
  -15,659
  -17,320
  -18,967
  -20,589
  -22,179
  -23,732
  -25,248
  -26,730
  -28,181
  -29,608
  -31,019
  -32,421
  -33,825
  -35,240
  -36,675
  -38,141
  -39,647
  -41,202
  -42,816
  -44,497
  -46,254
  -48,094
  -50,028
Cash from operations, $m
  3,220
  27,758
  34,705
  43,985
  54,844
  67,341
  81,512
  97,372
  114,918
  134,129
  154,975
  177,003
  201,003
  226,520
  253,515
  281,956
  311,818
  343,083
  375,743
  409,799
  445,264
  482,159
  520,515
  560,374
  601,787
  644,814
  689,523
  735,992
  784,307
  834,559
  886,853
Maintenance CAPEX, $m
  0
  -2,624
  -3,557
  -4,704
  -6,094
  -7,745
  -9,672
  -11,886
  -14,394
  -17,200
  -20,304
  -23,702
  -27,392
  -31,366
  -35,618
  -40,142
  -44,932
  -49,982
  -55,287
  -60,845
  -66,654
  -72,715
  -79,030
  -85,602
  -92,436
  -99,540
  -106,923
  -114,595
  -122,568
  -130,856
  -139,474
New CAPEX, $m
  -1,520
  -4,662
  -5,739
  -6,949
  -8,254
  -9,635
  -11,071
  -12,541
  -14,029
  -15,517
  -16,993
  -18,446
  -19,870
  -21,262
  -22,621
  -23,948
  -25,248
  -26,527
  -27,791
  -29,047
  -30,305
  -31,572
  -32,858
  -34,172
  -35,521
  -36,914
  -38,360
  -39,866
  -41,440
  -43,089
  -44,821
Cash from investing activities, $m
  -5,195
  -7,286
  -9,296
  -11,653
  -14,348
  -17,380
  -20,743
  -24,427
  -28,423
  -32,717
  -37,297
  -42,148
  -47,262
  -52,628
  -58,239
  -64,090
  -70,180
  -76,509
  -83,078
  -89,892
  -96,959
  -104,287
  -111,888
  -119,774
  -127,957
  -136,454
  -145,283
  -154,461
  -164,008
  -173,945
  -184,295
Free cash flow, $m
  -1,975
  20,471
  25,410
  32,332
  40,495
  49,961
  60,769
  72,945
  86,494
  101,411
  117,678
  134,854
  153,741
  173,892
  195,276
  217,866
  241,638
  266,574
  292,665
  319,907
  348,305
  377,871
  408,627
  440,601
  473,831
  508,360
  544,241
  581,532
  620,299
  660,614
  702,558
Issuance/(repayment) of debt, $m
  991
  23,447
  29,018
  35,139
  41,738
  48,719
  55,979
  63,417
  70,939
  78,465
  85,927
  93,275
  100,477
  107,514
  114,384
  121,096
  127,671
  134,135
  140,525
  146,879
  153,238
  159,648
  166,150
  172,791
  179,613
  186,659
  193,969
  201,585
  209,544
  217,884
  226,641
Issuance/(repurchase) of shares, $m
  121
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2,090
  23,447
  29,018
  35,139
  41,738
  48,719
  55,979
  63,417
  70,939
  78,465
  85,927
  93,275
  100,477
  107,514
  114,384
  121,096
  127,671
  134,135
  140,525
  146,879
  153,238
  159,648
  166,150
  172,791
  179,613
  186,659
  193,969
  201,585
  209,544
  217,884
  226,641
Total cash flow (excl. dividends), $m
  136
  43,918
  54,428
  67,471
  82,234
  98,680
  116,748
  136,362
  157,434
  179,876
  203,605
  228,129
  254,218
  281,406
  309,660
  338,962
  369,308
  400,710
  433,190
  466,786
  501,543
  537,519
  574,777
  613,392
  653,444
  695,019
  738,210
  783,117
  829,843
  878,498
  929,199
Retained Cash Flow (-), $m
  -1,738
  -4,710
  -5,859
  -7,095
  -8,428
  -9,838
  -11,303
  -12,805
  -14,324
  -15,844
  -17,351
  -18,834
  -20,289
  -21,710
  -23,097
  -24,452
  -25,780
  -27,085
  -28,375
  -29,658
  -30,942
  -32,237
  -33,550
  -34,891
  -36,268
  -37,691
  -39,167
  -40,705
  -42,312
  -43,996
  -45,764
Prev. year cash balance distribution, $m
 
  66,808
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  106,017
  48,568
  60,375
  73,806
  88,842
  105,445
  123,556
  143,109
  164,032
  186,254
  209,295
  233,929
  259,696
  286,563
  314,510
  343,529
  373,625
  404,815
  437,128
  470,601
  505,282
  541,228
  578,502
  617,176
  657,328
  699,043
  742,412
  787,531
  834,503
  883,435
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  101,646
  44,463
  52,543
  60,772
  68,864
  76,526
  83,473
  89,447
  94,228
  97,646
  99,391
  99,826
  98,741
  96,204
  92,335
  87,298
  81,295
  74,551
  67,305
  59,799
  52,263
  44,908
  37,916
  31,434
  25,571
  20,395
  15,934
  12,184
  9,109
  6,652
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Baidu, Inc. provides Internet search services in China and internationally. It operates through Search Services, Transaction Services, and IQiyi segments. It offers Chinese language search platform on its Baidu.com Website that enables users to find relevant information online, including Web pages, news, images, documents, and multimedia files through links provided on its Website; and transaction platform, including Nuomi.com to connect online and offline services provided by third-parties. The company also provides transaction services, such as Baidu Nuomi, Baidu Takeout Delivery, Baidu Maps, Baidu Connect, Baidu Wallet, and others; and iQiyi, an online video platform with a content library that includes licensed movies, television series, cartoons, shows, and other programs. In addition, it offers auction-based P4P services; and online marketing services based on search queries, contextuals, audience attributes, media and placement attributes, and other forms; and value-added consultative services. The company serves online marketing customers, including SMEs, large domestic companies, and Chinese divisions and subsidiaries of multinational corporations operating in the retail and ecommerce, local services, medical and healthcare, financial services, education, tourism and ticketing, online games, transportation, business services, and construction and decoration industries. It sells its search and transaction services directly, as well as through its distribution network. The company was formerly known as Baidu.com, Inc. and changed its name to Baidu, Inc. in December 2008. Baidu, Inc. was founded in 2000 and is headquartered in Beijing, the PeopleĀ’s Republic of China.

FINANCIAL RATIOS  of  Baidu ADR (BIDU)

Valuation Ratios
P/E Ratio 3.9
Price to Sales 0.6
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 1.9
Price to Free Cash Flow 3.7
Growth Rates
Sales Growth Rate 6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 35.1%
Cap. Spend. - 3 Yr. Gr. Rate 23.3%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 37.4%
Total Debt to Equity 48%
Interest Coverage 14
Management Effectiveness
Return On Assets 7.3%
Ret/ On Assets - 3 Yr. Avg. 17%
Return On Total Capital 8.8%
Ret/ On T. Cap. - 3 Yr. Avg. 21.1%
Return On Equity 12.8%
Return On Equity - 3 Yr. Avg. 31%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 50%
Gross Margin - 3 Yr. Avg. 56.7%
EBITDA Margin 33.9%
EBITDA Margin - 3 Yr. Avg. 46.7%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 19.3%
Pre-Tax Margin 20.6%
Pre-Tax Margin - 3 Yr. Avg. 35.7%
Net Profit Margin 15.7%
Net Profit Margin - 3 Yr. Avg. 30.9%
Effective Tax Rate 20.1%
Eff/ Tax Rate - 3 Yr. Avg. 16.6%
Payout Ratio 0%

BIDU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BIDU stock intrinsic value calculation we used $66382 million for the last fiscal year's total revenue generated by Baidu ADR. The default revenue input number comes from 2016 income statement of Baidu ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BIDU stock valuation model: a) initial revenue growth rate of 35.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for BIDU is calculated based on our internal credit rating of Baidu ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Baidu ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BIDU stock the variable cost ratio is equal to 73.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BIDU stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Baidu ADR.

Corporate tax rate of 27% is the nominal tax rate for Baidu ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BIDU stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BIDU are equal to 19.8%.

Life of production assets of 5 years is the average useful life of capital assets used in Baidu ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BIDU is equal to -22.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $80256 million for Baidu ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 349.227 million for Baidu ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Baidu ADR at the current share price and the inputted number of shares is $62.6 billion.


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COMPANY NEWS

▶ Is There a Crisis at Baidu?   [09:07AM  Market Realist]
▶ Better Buy: Baidu, Inc. vs. Facebook   [06:47PM  Motley Fool]
▶ Why This Stock Has an Edge Over Baidu, Alibaba & Tencent   [Jun-19-17 10:50PM  Barrons.com]
▶ 3 Value Stocks You Haven't Thought Of   [02:33PM  Motley Fool]
▶ China's Internet Giants Dominate Local Digital-Ad Market   [06:09AM  The Wall Street Journal]
▶ Baidu "Searches" for Ways to Take on Google   [Jun-17-17 03:04PM  Motley Fool]
▶ [$$] Baidu, With a Move Into Fintech, Gets Wary Credit-Ratings Look   [Jun-16-17 12:09AM  The Wall Street Journal]
▶ Not a Good Idea? Baidu Entering Financial Services Market   [Jun-15-17 10:32AM  TheStreet.com]
▶ Swing for the Fences in Baidu Inc (ADR) (BIDU) Stock   [Jun-14-17 01:35PM  InvestorPlace]
▶ Will Baidu Inc. Sink or Swim?   [12:00PM  Motley Fool]
▶ Baidus Turnaround Strategy   [12:56AM  The Wall Street Journal]
▶ Baidu's Turnaround Strategy   [01:58PM  The Wall Street Journal]
▶ 4 Risks SINA Corp. Bulls Need to Know   [Jun-12-17 02:18PM  Motley Fool]
▶ 5 Ways To Get Ready For The Market's Next Turn   [Jun-09-17 05:00PM  Investor's Business Daily]
▶ [$$] The U.S. Is Ahead of China in AI Innovation---for Now   [06:24AM  The Wall Street Journal]
▶ [$$] Baidu Pins Hopes on Self-Driving Technology   [05:25AM  The Wall Street Journal]
▶ Baidu's Case for an AI Ecosystem   [05:14AM  MarketWatch]
▶ [$$] Chinas Expanding Web of Riches   [01:21AM  The Wall Street Journal]
▶ Stocks Defend Narrow Gains; 3 China Names Top Buy Points   [Jun-08-17 09:47AM  Investor's Business Daily]
▶ Better Buy: Twitter, Inc. vs. Baidu   [Jun-07-17 12:48PM  Motley Fool]
▶ 3 Stocks With Facebook-Like Return Potential   [Jun-06-17 09:27AM  Motley Fool]
▶ [$$] Chinese town saving faces   [Jun-03-17 11:23PM  Financial Times]
▶ [$$] Baidu's Turn as a Bank Is Unwelcome   [06:08AM  The Wall Street Journal]
▶ Two self-driving latecomers team up to take on Tesla and Google   [09:53AM  American City Business Journals]
▶ Why Emerging Market Funds Snub Alibaba, Baidu & Sina   [May-30-17 05:43PM  Barrons.com]
▶ [$$] Bullish on Emerging Markets, Bearish on U.S.   [May-27-17 12:52AM  Barrons.com]
▶ Why Baidu Inc. Shareholders Have Nothing to Worry About   [May-26-17 08:02AM  Motley Fool]
▶ [$$] The Search Ace Standing Between Baidu and Irrelevance   [May-25-17 12:07PM  The Wall Street Journal]
▶ Moody's downgrades China's credit rating   [May-24-17 10:35AM  Yahoo Finance Video]
▶ [$$] China tech emerges as global hotspot for VC capital   [May-23-17 08:45PM  Financial Times]
▶ Stay Long on Baidu   [02:57PM  TheStreet.com]
▶ Will Baidu Ever Return to High Growth?   [May-22-17 12:59PM  GuruFocus.com]
▶ [$$] Baidu Falls Behind in Race to be China's Netflix   [07:52AM  The Wall Street Journal]
▶ 3 Stocks That Look Just Like Google in 2004   [May-20-17 01:18PM  Motley Fool]
▶ If You're in Your 40s, Consider Buying This Stock   [May-19-17 07:47AM  Motley Fool]
▶ Baidu Worth Searching as a Potential Buy   [09:36AM  TheStreet.com]
▶ Futures Retreat As Trump Woes Worry Investors; 4 Stocks Are In Buy Range   [May-17-17 06:46AM  Investor's Business Daily]
▶ Alibaba, Tencent to Ride Online Video Boom   [May-16-17 09:07PM  Barrons.com]
▶ ETFs with exposure to Baidu, Inc. : May 15, 2017   [May-15-17 03:22PM  Capital Cube]
Stock chart of BIDU Financial statements of BIDU Annual reports of BIDU
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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