Intrinsic value of Baidu, Inc. - BIDU

Previous Close

$102.59

  Intrinsic Value

$737.86

stock screener

  Rating & Target

str. buy

+619%

Previous close

$102.59

 
Intrinsic value

$737.86

 
Up/down potential

+619%

 
Rating

str. buy

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  26.20
  24.08
  22.17
  20.45
  18.91
  17.52
  16.27
  15.14
  14.13
  13.21
  12.39
  11.65
  10.99
  10.39
  9.85
  9.36
  8.93
  8.54
  8.18
  7.86
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
Revenue, $m
  10,207
  16,178
  20,073
  24,524
  29,540
  35,126
  41,279
  47,994
  55,260
  63,066
  71,399
  80,247
  89,598
  99,443
  109,774
  120,586
  131,879
  143,654
  155,916
  168,673
  181,937
  195,723
  210,049
  224,937
  240,410
  256,496
  273,225
  290,628
  308,743
  327,605
  347,257
Variable operating expenses, $m
 
  10,498
  12,981
  15,817
  19,014
  22,574
  26,495
  30,775
  35,405
  40,380
  45,691
  51,141
  57,100
  63,374
  69,958
  76,848
  84,045
  91,549
  99,363
  107,493
  115,946
  124,732
  133,862
  143,349
  153,210
  163,462
  174,123
  185,214
  196,758
  208,779
  221,302
Fixed operating expenses, $m
 
  2,177
  2,225
  2,274
  2,324
  2,375
  2,427
  2,480
  2,535
  2,591
  2,648
  2,706
  2,766
  2,826
  2,889
  2,952
  3,017
  3,084
  3,151
  3,221
  3,292
  3,364
  3,438
  3,514
  3,591
  3,670
  3,751
  3,833
  3,917
  4,004
  4,092
Total operating expenses, $m
  8,753
  12,675
  15,206
  18,091
  21,338
  24,949
  28,922
  33,255
  37,940
  42,971
  48,339
  53,847
  59,866
  66,200
  72,847
  79,800
  87,062
  94,633
  102,514
  110,714
  119,238
  128,096
  137,300
  146,863
  156,801
  167,132
  177,874
  189,047
  200,675
  212,783
  225,394
Operating income, $m
  1,454
  3,502
  4,867
  6,433
  8,202
  10,177
  12,357
  14,739
  17,320
  20,096
  23,061
  26,401
  29,733
  33,243
  36,928
  40,786
  44,817
  49,022
  53,401
  57,959
  62,699
  67,627
  72,750
  78,074
  83,609
  89,364
  95,351
  101,581
  108,067
  114,823
  121,863
EBITDA, $m
  2,658
  4,186
  5,670
  7,372
  9,295
  11,441
  13,809
  16,396
  19,200
  22,214
  25,435
  28,856
  32,475
  36,286
  40,287
  44,476
  48,853
  53,418
  58,173
  63,121
  68,267
  73,617
  79,178
  84,957
  90,966
  97,214
  103,713
  110,475
  117,516
  124,848
  132,490
Interest expense (income), $m
  161
  356
  632
  952
  1,316
  1,728
  2,186
  2,690
  3,241
  3,837
  4,477
  5,160
  5,885
  6,652
  7,459
  8,306
  9,193
  10,119
  11,084
  12,089
  13,135
  14,223
  15,353
  16,528
  17,749
  19,017
  20,336
  21,708
  23,135
  24,620
  26,167
Earnings before tax, $m
  2,099
  3,147
  4,235
  5,481
  6,886
  8,449
  10,171
  12,049
  14,079
  16,259
  18,584
  21,241
  23,848
  26,591
  29,469
  32,480
  35,624
  38,903
  42,317
  45,870
  49,564
  53,404
  57,396
  61,546
  65,860
  70,347
  75,015
  79,874
  84,933
  90,203
  95,696
Tax expense, $m
  421
  850
  1,144
  1,480
  1,859
  2,281
  2,746
  3,253
  3,801
  4,390
  5,018
  5,735
  6,439
  7,180
  7,957
  8,770
  9,619
  10,504
  11,426
  12,385
  13,382
  14,419
  15,497
  16,617
  17,782
  18,994
  20,254
  21,566
  22,932
  24,355
  25,838
Net income, $m
  1,602
  2,297
  3,092
  4,001
  5,027
  6,168
  7,425
  8,796
  10,278
  11,869
  13,567
  15,506
  17,409
  19,411
  21,512
  23,710
  26,006
  28,399
  30,891
  33,485
  36,182
  38,985
  41,899
  44,929
  48,078
  51,353
  54,761
  58,308
  62,001
  65,848
  69,858

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
  34,941
  43,355
  52,967
  63,801
  75,866
  89,156
  103,659
  119,353
  136,212
  154,211
  173,320
  193,517
  214,780
  237,093
  260,446
  284,836
  310,268
  336,751
  364,304
  392,952
  422,728
  453,670
  485,825
  519,244
  553,987
  590,118
  627,707
  666,831
  707,571
  750,015
Adjusted assets (=assets-cash), $m
  13,332
  34,941
  43,355
  52,967
  63,801
  75,866
  89,156
  103,659
  119,353
  136,212
  154,211
  173,320
  193,517
  214,780
  237,093
  260,446
  284,836
  310,268
  336,751
  364,304
  392,952
  422,728
  453,670
  485,825
  519,244
  553,987
  590,118
  627,707
  666,831
  707,571
  750,015
Revenue / Adjusted assets
  0.766
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
Average production assets, $m
  2,107
  4,109
  5,099
  6,229
  7,503
  8,922
  10,485
  12,190
  14,036
  16,019
  18,135
  20,383
  22,758
  25,259
  27,883
  30,629
  33,497
  36,488
  39,603
  42,843
  46,212
  49,714
  53,352
  57,134
  61,064
  65,150
  69,399
  73,820
  78,421
  83,212
  88,203
Working capital, $m
  7,762
  -12,619
  -15,657
  -19,129
  -23,041
  -27,398
  -32,198
  -37,435
  -43,103
  -49,192
  -55,692
  -62,593
  -69,887
  -77,566
  -85,624
  -94,057
  -102,866
  -112,050
  -121,614
  -131,565
  -141,911
  -152,664
  -163,838
  -175,451
  -187,520
  -200,067
  -213,115
  -226,690
  -240,819
  -255,532
  -270,860
Total debt, $m
  6,404
  11,706
  17,621
  24,379
  31,995
  40,477
  49,820
  60,015
  71,048
  82,900
  95,553
  108,987
  123,185
  138,133
  153,819
  170,236
  187,383
  205,261
  223,879
  243,249
  263,388
  284,320
  306,073
  328,678
  352,172
  376,596
  401,996
  428,421
  455,925
  484,565
  514,403
Total liabilities, $m
  12,981
  24,563
  30,478
  37,236
  44,852
  53,334
  62,677
  72,872
  83,905
  95,757
  108,410
  121,844
  136,042
  150,990
  166,676
  183,093
  200,240
  218,118
  236,736
  256,106
  276,245
  297,178
  318,930
  341,535
  365,029
  389,453
  414,853
  441,278
  468,782
  497,422
  527,260
Total equity, $m
  13,349
  10,377
  12,876
  15,731
  18,949
  22,532
  26,479
  30,787
  35,448
  40,455
  45,801
  51,476
  57,475
  63,790
  70,416
  77,352
  84,596
  92,150
  100,015
  108,198
  116,707
  125,550
  134,740
  144,290
  154,216
  164,534
  175,265
  186,429
  198,049
  210,148
  222,754
Total liabilities and equity, $m
  26,330
  34,940
  43,354
  52,967
  63,801
  75,866
  89,156
  103,659
  119,353
  136,212
  154,211
  173,320
  193,517
  214,780
  237,092
  260,445
  284,836
  310,268
  336,751
  364,304
  392,952
  422,728
  453,670
  485,825
  519,245
  553,987
  590,118
  627,707
  666,831
  707,570
  750,014
Debt-to-equity ratio
  0.480
  1.130
  1.370
  1.550
  1.690
  1.800
  1.880
  1.950
  2.000
  2.050
  2.090
  2.120
  2.140
  2.170
  2.180
  2.200
  2.220
  2.230
  2.240
  2.250
  2.260
  2.260
  2.270
  2.280
  2.280
  2.290
  2.290
  2.300
  2.300
  2.310
  2.310
Adjusted equity ratio
  0.095
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,602
  2,297
  3,092
  4,001
  5,027
  6,168
  7,425
  8,796
  10,278
  11,869
  13,567
  15,506
  17,409
  19,411
  21,512
  23,710
  26,006
  28,399
  30,891
  33,485
  36,182
  38,985
  41,899
  44,929
  48,078
  51,353
  54,761
  58,308
  62,001
  65,848
  69,858
Depreciation, amort., depletion, $m
  1,204
  684
  803
  939
  1,093
  1,264
  1,452
  1,657
  1,880
  2,119
  2,374
  2,456
  2,742
  3,043
  3,359
  3,690
  4,036
  4,396
  4,771
  5,162
  5,568
  5,990
  6,428
  6,884
  7,357
  7,849
  8,361
  8,894
  9,448
  10,026
  10,627
Funds from operations, $m
  4,036
  2,981
  3,895
  4,940
  6,119
  7,432
  8,877
  10,453
  12,157
  13,988
  15,940
  17,962
  20,151
  22,454
  24,871
  27,400
  30,042
  32,795
  35,663
  38,647
  41,749
  44,975
  48,327
  51,812
  55,435
  59,203
  63,122
  67,202
  71,449
  75,874
  80,485
Change in working capital, $m
  816
  -2,620
  -3,039
  -3,471
  -3,913
  -4,357
  -4,800
  -5,237
  -5,668
  -6,089
  -6,500
  -6,901
  -7,294
  -7,679
  -8,058
  -8,434
  -8,808
  -9,184
  -9,564
  -9,950
  -10,346
  -10,753
  -11,175
  -11,612
  -12,069
  -12,547
  -13,048
  -13,575
  -14,129
  -14,713
  -15,328
Cash from operations, $m
  3,220
  5,601
  6,933
  8,412
  10,032
  11,789
  13,676
  15,690
  17,825
  20,076
  22,440
  24,863
  27,444
  30,133
  32,929
  35,834
  38,850
  41,980
  45,227
  48,597
  52,095
  55,728
  59,502
  63,425
  67,504
  71,750
  76,171
  80,777
  85,578
  90,586
  95,813
Maintenance CAPEX, $m
  0
  -392
  -495
  -614
  -750
  -904
  -1,075
  -1,263
  -1,469
  -1,691
  -1,930
  -2,185
  -2,456
  -2,742
  -3,043
  -3,359
  -3,690
  -4,036
  -4,396
  -4,771
  -5,162
  -5,568
  -5,990
  -6,428
  -6,884
  -7,357
  -7,849
  -8,361
  -8,894
  -9,448
  -10,026
New CAPEX, $m
  -1,520
  -858
  -989
  -1,130
  -1,274
  -1,419
  -1,563
  -1,706
  -1,846
  -1,983
  -2,117
  -2,247
  -2,375
  -2,501
  -2,624
  -2,746
  -2,868
  -2,991
  -3,114
  -3,240
  -3,369
  -3,502
  -3,639
  -3,781
  -3,930
  -4,086
  -4,249
  -4,421
  -4,601
  -4,791
  -4,991
Cash from investing activities, $m
  -5,195
  -1,250
  -1,484
  -1,744
  -2,024
  -2,323
  -2,638
  -2,969
  -3,315
  -3,674
  -4,047
  -4,432
  -4,831
  -5,243
  -5,667
  -6,105
  -6,558
  -7,027
  -7,510
  -8,011
  -8,531
  -9,070
  -9,629
  -10,209
  -10,814
  -11,443
  -12,098
  -12,782
  -13,495
  -14,239
  -15,017
Free cash flow, $m
  -1,975
  4,351
  5,449
  6,667
  8,007
  9,466
  11,039
  12,722
  14,511
  16,402
  18,394
  20,430
  22,614
  24,891
  27,262
  29,729
  32,291
  34,953
  37,716
  40,585
  43,564
  46,658
  49,873
  53,215
  56,690
  60,307
  64,072
  67,995
  72,083
  76,347
  80,796
Issuance/(repayment) of debt, $m
  991
  5,121
  5,915
  6,758
  7,617
  8,481
  9,343
  10,195
  11,033
  11,852
  12,653
  13,434
  14,198
  14,948
  15,686
  16,417
  17,147
  17,878
  18,618
  19,370
  20,140
  20,932
  21,752
  22,605
  23,494
  24,424
  25,400
  26,425
  27,504
  28,640
  29,838
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
  5,121
  5,915
  6,758
  7,617
  8,481
  9,343
  10,195
  11,033
  11,852
  12,653
  13,434
  14,198
  14,948
  15,686
  16,417
  17,147
  17,878
  18,618
  19,370
  20,140
  20,932
  21,752
  22,605
  23,494
  24,424
  25,400
  26,425
  27,504
  28,640
  29,838
Total cash flow (excl. dividends), $m
  136
  9,473
  11,363
  13,425
  15,624
  17,947
  20,382
  22,917
  25,544
  28,255
  31,046
  33,865
  36,812
  39,838
  42,948
  46,146
  49,438
  52,831
  56,334
  59,955
  63,704
  67,591
  71,626
  75,820
  80,184
  84,731
  89,472
  94,420
  99,587
  104,987
  110,634
Retained Cash Flow (-), $m
  -1,738
  -2,155
  -2,499
  -2,855
  -3,218
  -3,583
  -3,947
  -4,307
  -4,661
  -5,007
  -5,345
  -5,676
  -5,998
  -6,315
  -6,627
  -6,936
  -7,244
  -7,553
  -7,865
  -8,183
  -8,508
  -8,843
  -9,190
  -9,550
  -9,926
  -10,319
  -10,731
  -11,164
  -11,620
  -12,100
  -12,606
Prev. year cash balance distribution, $m
 
  9,212
  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
 
  16,529
  8,865
  10,570
  12,406
  14,364
  16,434
  18,610
  20,882
  23,247
  25,701
  28,189
  30,813
  33,523
  36,321
  39,210
  42,194
  45,278
  48,469
  51,772
  55,196
  58,747
  62,436
  66,270
  70,259
  74,413
  78,741
  83,256
  87,967
  92,888
  98,029
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
 
  15,848
  8,115
  9,199
  10,215
  11,134
  11,927
  12,572
  13,052
  13,354
  13,474
  13,387
  13,149
  12,746
  12,194
  11,511
  10,722
  9,852
  8,926
  7,971
  7,014
  6,076
  5,181
  4,343
  3,578
  2,895
  2,297
  1,787
  1,361
  1,014
  738
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. is a Chinese language Internet search provider. The Company offers a Chinese language search platform on its Baidu.com Website that enables users to find information online, including Webpages, news, images, documents and multimedia files, through links provided on its Website. In addition to serving individual Internet search users, the Company provides a platform for businesses to reach customers. Its business consists of three segments: search services, transaction services and iQiyi. Search services are keyword-based marketing services targeted at and triggered by Internet users' search queries, which mainly include its pay-for-performance (P4P) services and other online marketing services. Its transaction services include Baidu Nuomi, Baidu Takeout Delivery, Baidu Maps, Baidu Connect, Baidu Wallet and others. iQiyi is an online video platform with a content library that includes licensed movies, television series, cartoons, variety shows and other programs.

FINANCIAL RATIOS  of  Baidu, Inc. (BIDU)

Valuation Ratios
P/E Ratio 2.2
Price to Sales 0.3
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow 1.1
Price to Free Cash Flow 2.1
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 $12819 million for the last fiscal year's total revenue generated by Baidu, Inc.. The default revenue input number comes from 2016 income statement of Baidu, Inc.. 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 26.2% 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, Inc., 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, Inc..
    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 65.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2130 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 5.4% for Baidu, Inc..

Corporate tax rate of 27% is the nominal tax rate for Baidu, Inc.. 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 25.4%.

Life of production assets of 8.3 years is the average useful life of capital assets used in Baidu, Inc. 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 -78%. 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 - $17434.401451 million for Baidu, Inc. - 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 348.545 million for Baidu, Inc. 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, Inc. at the current share price and the inputted number of shares is $35.8 billion.

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