Baidu Inc. (BIDU:US), owner of China’s most popular search engine, dropped the most in three days on speculation the company will acquire mobile businesses that may not be immediately profitable.
Shares of Baidu fell 0.9 percent to $93.24 in New York after plunging earlier today to $90.55, the lowest intraday level since September 2010. The stock has lost 43 percent since reaching a record high of $164.36 on July 26, 2011, as slowing economic growth in China damps demand for advertising.
Baidu, which accounts for more than three-quarters of China’s search-engine market by sales, said it raised $1.5 billion in its debut bond issue yesterday, in part to fund possible acquisitions. Baidu may be targeting companies in mobile businesses for expansion as users migrate from personal computers to portable devices such as smartphones, according to Jeff Papp, a senior analyst at Oberweis Asset Management Inc..
“The risk is everyone wants to move to the mobile business but none of them has made money out of it yet,” Papp, who doesn’t own Baidu shares, said by phone from Lisle, Illinois. “The dilemma for Baidu is that they want to further cement their position in mobile business, but they may not have a huge return on assets right away.”
Baidu sold $750 million each of 2.25 percent, five-year debentures and 3.5 percent, 10-year securities, according to data compiled by Bloomberg. Baidu is rated at A3 at Moody’s Investors Service and A at Fitch.
“Our bond offer is really about having a ready war chest that gives us flexibility for a range of future strategic uses,” Kaiser Kuo, a spokesman for Beijing-based Baidu, said in an e-mailed response to questions today. “While we have no specific M&A deals pending currently, we will as always be attuned to opportunities and will make prudent acquisitions.”
Chief Executive Officer Robin Li told a conference at Stanford University in September that China’s biggest Internet companies haven’t yet figured out the best way to make money from mobile, and that he was patiently experimenting with business models.
About 25 percent of Baidu’s research and development spending is on mobile, even as smartphones make up less than 10 percent of the company’s total sales, Li said at the September conference. Mobile sales at least tripled this year as Baidu rolled out products, he said.
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