Must-know: TPG-Axon Capital Management’s 2Q14 positions (Part 2 of 7)

(Continued from Part 1)

TPG-Axon Capital Management and Baidu Inc. 

The fund traded notable positions in the second quarter. It initiated new stakes in Baidu Inc. (BIDU) and Monsanto Co. (MON). The fund also sold its shares in Halliburton Co. (HAL), FMC Corp. (FMC), and Citigroup Inc. (or C). The fund decreased its position in Equinix (EQIX) during 2Q14.

TPG-Axon initiated a brand new position in Baidu Inc. BIDU accounts for 4.17% of the fund’s second quarter portfolio.

Company Profile

Baidu Inc. is the leading Chinese language Internet search provider. As a technology-based media company, Baidu provides the best and most equitable way for people to find what they’re looking for.

In addition to serving individual Internet search users, Baidu provides an effective platform for businesses to reach potential customers. It offers several services including a Chinese language search engine for websites, audio files, image search, Baidu Browser, and Baidu Baike. Baidu also offers an encyclopedia and searchable keyword house discussion forum.

Baidu’s website is the largest website in China. It’s the fifth largest website globally—as measured by average daily visitors and page views. The results were measured during the three-month period ending December 31, 2013, according to Alexa.com. Alexa.com is an Internet analytics firm.

Baidu is the most used Internet search provider in China. It captured 81.6% of Internet search traffic in China in 2013, according to iResearch Consulting Group. iResearch is a market research firm. It’s often referred as China’s Google.

Baidu losing search engine market share

In August 2014, a search engine market share report by CNZZ showed that Baidu continued to give ground to Qihoo 360 Technology and Sogou—backed by Sohu (or SOHU) and Tencent Holding (or TCEHY). The research included desktop and mobile data. Baidu had a 56.3% share. It was down from 58.3% in July. Qihoo had a 29% share. It was up from 27.5% in July.

Baidu posts robust results in mobile growth

Baidu reported total revenues of $1.932 billion for 2Q14. It beat the estimates. It was a 58.5% increase from the same period in 2013. Online marketing revenues for 2Q14 were $1.908 billion. This was a 57% increase from the same period in 2013.

Baidu had ~488,000 active online marketing customers in 2Q14. The traffic acquisition cost (or TAC) was $244.6 million. This represented 12.7% of total revenues—compared to 11.6% in the same period in 2013. The increase was due to a higher contribution of contextual ads, mobile, and promotion of hao123.

Management added that “We had a great quarter as we continued to build very strong mobile momentum. As the clear leader in mobile search, mobile map and app distribution, mobile revenue for the first time ever contributed to 30% of our total revenue. We deepened our investment in advanced technologies like Deep Learning, which is already yielding near term enhancements in user experience and customer ROI and is expected to drive transformational change over the longer term.”

The company also noted that “In the second quarter, revenue remained on a solid growth trajectory, with mobile as an integral part of our business that is a clear driver of our top line. We will invest aggressively in our strategic focus areas—search, mobile cloud, consumer business, location-based services (or LBS), and international business.”

The next part of the series we’ll discuss why TPG-Axon opened its position in Monsanto Co.

Click here to learn more about Baidu.