Baidu Inc (ADR) (BIDU), China’s leading internet search provider, will invest up to $600 million in the ride-booking service Uber Technologies Inc., according to Bloomberg.
It’s a strategic partnership for both companies. Baidu is looking to promote and expand its mobile payment platform “Baidu Wallet,” which will presumably be seamlessly integrated into Uber’s services in China.
BIDU also wants to gain some sort of share in China’s taxi-summoning industry, where rivals Alibaba Group Holding Ltd (BABA) and Tencent Holdings Ltd (TCTZF) currently back the top two taxi-booking services, Didi Dache, and Kuaidi Dache.
Uber, for its part, is getting more than the estimated $600 million cash infusion from BIDU. The deal also reportedly includes access to a ton of useful data Baidu has collected through its map applications, app store, and mobile search product. TechCrunch alluded to just how useful Baidu could be for Uber: “earlier this year it released a heat map of the most popular routes during Chinese New Year” using data from its map app.
Is Uber the Right Partner for BIDU?
Of course, why wouldn’t Uber want to take $600 million in cash to partner with China’s equivalent of Google Inc (GOOG)? It’s got grand plans for global expansion, and China is, after all, the largest economy in the world.
BIDU, on the other hand, is getting the short end of the stick.
Uber is a young and litigation-happy company, with its services either banned, facing bans, or facing regulatory actions in a handful of major U.S. markets as well as Spain, the Netherlands, India, Thailand, Vietnam, and Singapore.
Several bizarre interactions with BuzzFeed reporters by Uber’s management team in the last month cast further doubt on Uber’s leadership and company morality. Emil Michael, Uber’s senior vice president, reportedly suggested spending $1 million to dig up dirt on journalists critical of the company.
Another BuzzFeed reporter said that her movements were tracked without her knowledge by the general manager of Uber New York, Josh Mohrer, as she made her way to Uber HQ for an interview.
So a Baidu-Uber partnership is a little confusing from the point-of-view of a BIDU stockholder. If Baidu is anxious to partner with a snooping, censor-happy organization, the Chinese government would seems like the natural choice.
On top of the suspect morality and leadership at the company, Uber’s current $40 billion valuation is an absolute ripoff. Consider this: only six months ago Andrew Ross Sorkin of The New York Times wrote a piece called “Why Uber Might Well Be Worth $18 Billion,” pleading readers to entertain the company’s $18.2 billion valuation as merely plausible. Even then, he concedes that “maybe Uber will turn out to be a bust.”
And now Uber’s value has more than doubled? Color me skeptical.
However, the value of any asset is what someone else is willing to pay for it, and if BIDU’s aim is to sell out at a much higher price — in the case of an Uber IPO, for instance — then I can wrap my head around it. No one’s faulting Yahoo! Inc. (YHOO) for the home run it hit with Alibaba, and Qualcomm, Inc.‘s (QCOM) investment in mobile phone-maker Xiaomi is one of the reasons I feel QCOM stock is the best buy in the tech sector today.
But if BIDU’s investment truly is strategic, I think Uber will be more trouble than it’s worth, and I suspect Baidu’s $8.4 billion cash on hand was begging to be spent.
John Divine is assistant editor of InvestorPlace.com. As of this writing, he owns shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid.
