#179: Prospective Investments in China

Tencent:

Tencent is a Chinese Internet giant with businesses and investments in a wide variety of Internet services and contents. Major services include communication and social networking (Weixin/WeChat and QQ), online PC and mobile games, content (news, videos, music, comics, and literature), utilities (email, app store, mobile security, and mobile browser), the cloud, and financial technology. Tenpay in Weixin/WeChat and QQ is a payment solution that enables closed-loop transactions in Tencent's ecosystems and has been adopted by many third-party partners and offline merchants. 

Tencent has an aggregate monthly active user base of over 600 million for QQ and 1.2 billion for Weixin/WeChat.

Summary: 

Current Margin of Safety: -51.48%. Do not buy as yet.

We remain concerned with the growth strategy and competitive landscape despite our respect for the longtime success of the business and its founder.

Baidu

Baidu is the largest Internet search engine in China with mid-70s mobile traffic share in the search market. The firm generates 86% of revenue from online marketing services and the rest from other segments. Baidu is a technology-driven company and has been investing in AI technology, such as autonomously driven cars. Over the last 12 months, Baidu Inc. (NASDAQ:BIDU) has dropped significantly, from nearly $280 per share to $152.4 per share at the time of writing.

As of December 2018, Baidu had $20.23 billion in cash and short-term investments. The interest-bearing debt (including short term and long term) was $9.44 billion. Thus, the net cash position was very high at $10.79 billion. With the share price at $152.4, Baidu's total market cap stands at $53.3 billion. Thus, the net cash position accounts for 20.2% of the total market valuation.

Baidu Core is the company's main operating business, focusing on search-based, feed-based, other online marketing services and artificial intelligence. Despite facing increasing competition, Baidu still holds the leading position in China's search engine market. According to Statcounter, the company's market share stood at 66.25% in March. The second- and third-largest search engines, Shenma and Sogou, held 15.5% and 9.6% of the market.

Summary:

Your expected growth rate may not be reached. Expected 10-Y average free cash flow growth rate is greater than Historical 10-Y average free cash flow growth rate. Dalio sells stock, do not buy.