Case Baidu Essay

1445 WordsJun 3, 20156 Pages
Case Baidu.com, INC.: Valuation at IPO Ekaterina Demidova, IBS-Moscow, 2nd year, International Master in Management Svetlana Pantyukova, IBS-Moscow, 2nd year, International Master in Management 1st question What are the key determinants of value, or value drivers, for Baidu? The value of a company is determined by its ability to consistently maximize its risk-adjusted cash flow generation. Consequently, companies should focus on those factors that help them generate more cash, for longer periods of time and with the least risk possible. Researchers distinguish three wide categories of business value drivers: operational, financial and sustainability drivers. (Krogger Highlights | 2015, retrieved from http://www.krogger.co/key-value-drivers.html) In the case of Baidu.com, we can highlight following key value drivers: Operational Drivers Baidu’s revenue model The company’s P4P advertising service was its’ core product which generated 75% of the firm’s total revenue. In terms of P4P, pricing Baidu’s minimum bid (price per click) was RMB 0.30 and RMB 0.10 per initial bid – the highest rate among all search engines in China in 2005. In addition, advertisers had to pay deposits to Baidu for registration for RMB 2400 – again, the highest for all search engines in China. Sustainability Drivers Well-developed sales and distribution model Baidu was the first company to implement multi-tier sales and distribution model, which helped the company to get a significant competitive advantage in China’s developing search engines market. Baidu’s multi-tiered distribution turned out to be better than the traditional national distribution model, which was used by some of Baidu’s competitors. Distributors in different locations provided segment-specific services that were most relevant for a specific area. Thus, while national distributors were focusing mainly on

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