Fitch: Nuomi Acquisition to Strengthen Baidu's Mobile Platform

Mon Aug 26, 2013 12:10am EDT

Related Topics

(The following statement was released by the rating agency) HONG KONG, August 25 (Fitch) Fitch Ratings says Baidu, Inc.'s (Baidu, A/Stable) recent acquisitions, including that of Nuomi Holdings Inc. (Nuomi), will strengthen its market position in key mobile products and its mobile platform in a fast growing and an increasingly competitive Chinese mobile internet market. However, Baidu's credit metrics will remain strong due to robust cash generation and financial flexibility driven by its search business. Fitch believes that Baidu's recent acquisitions will play an important role in the company's future as mobile internet becomes increasingly important. Baidu has long been China's dominant search engine. However, its mobile platform has been weak at a time when China has become the world's largest market for smartphones and the mobile internet market is growing quicker than the PC internet market. According to China Internet Network Information Center, Chinese mobile internet users totalled 464 million in June 2013, up 19% yoy. Baidu's purchase of group-buying site Nuomi should further enhance Baidu's mobile presence in mapping and location-based services for local merchants and boost the company's e-commerce business, complementing its existing advertisement business. Baidu recently announced that it will acquire a 59% stake in Nuomi for USD160m in cash. Nuomi ranks as one of China's top group-buying sites, and has 3.8 million active paying users. Nuomi generated USD120m revenue in Q213, of which 30% was made through smartphones. The Nuomi acquisition will not materially alter Baidu's financial strength. Fitch continues to expect Baidu to maintain financial flexibility, with strong profitability, ample liquidity and prudent leverage over the medium term. Baidu has generated free cash flow margins of over 40% for the last four years. At end-June 2013 it had unrestricted cash of CNY9bn and short-term investments of over CNY25bn, compared with total debt of CNY11.8bn. Fitch expects funds flow from operations-adjusted leverage to remain below 2x for 2013 (1.3x for 2012). While Baidu's microblogging service has lagged behind major rivals, Fitch believes Baidu has taken steps to put together the building blocks for a competitive mobile strategy. Baidu has agreed to acquire 91 Wireless, China's largest third-party applications distribution store, to sharpen its ability to monetise mobile traffic. It also launched mobile applications called "lite apps" that do not need to be downloaded. Mobile users can access "lite apps" for transportation, travel and entertainment information through Baidu's search programme on smartphones. Contacts: Kelvin Ho Director +852 2263 9940 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Steve Durose Senior Director Head of APAC TMT Ratings +61 2 8256 0307 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

FILED UNDER: