Baidu's Cloud Effort Likely a 2013 (or Beyond) Story (BIDU, MSFT, GOOG, YHOO)
Baidu, Inc. (NASDAQ: BIDU) is among the latest of companies joining in on the cloud storage initiative. The company’s recent initiative at pan.baidu.com is set to ultimately compete against Microsoft Corporation (NASDAQ: MSFT), Google Inc. (NASDAQ: GOOG), Yahoo! Inc. (NASDAQ: YHOO) and other online giants offering online storage.
While this is no longer breaking news, the offering needs to be evaluated as another revenue and earnings stream. Almost every penny of the Chinese web search giant comes from variations of online advertising.
The service will provide 15GB of free space. As far as how it will make money, that will come from upselling for more storage from heavy storage users.
Thomson Reuters sees earnings of $4.60 EPS in 2012 with sales of $3.57 billion, so the $148.09 stock price generates an expected earnings multiple of about 32-times this year’s expected earnings. Its $51 billion market cap creates a revenue multiple of about 14.5-times expected earnings. So, the question boils down to just how much the company can add to revenues here, and ultimately to earnings.
Our take… Most likely this will be a story for 2013 and beyond as far as when it could really start to add to sales. Online storage offerings will take time to grow to where users will need more than that 15GB space. What the company is counting on is that once users start using a cloud storage product that it is just cheaper in the end to pay up for premium use rather than taking the time and effort of switching to a new storage offering elsewhere.
JON C. OGG