Baidu (NASDAQ:BIDU), China’s largest Internet search engine that commands over 70% market share, was the top contributor for the quarter, returning 38%. Shares reacted positively to the company’s nine-month earnings release in October and to the company’s plans to combine their majority-controlled travel business Qunar with Ctrip. This important deal will combine the top two online travel sites in China and should lead to significantly lower subsidies and higher profitability. Additionally, the shareholder-focused management team announced a new $2 billion share repurchase program during the quarter. Finally, we believe that management’s significant investments in new businesses, such as online-to-offline services (e.g., food delivery, ride sharing, etc.), are masking the strength of the core search business, which continues to grow at a healthy rate and generates significant profits. For these reasons, we believe today’s valuation neither reflects the fair value of the company’s search business nor gives any credit for its many non-search businesses; therefore, the stock price underestimates the company’s true value.
From David Herro (Trades, Portfolio)'s Oakmark International Fund fourth quarter commentary.
