Why Is Baidu (BIDU) Stock Down Today?

Shares of Chinese internet search giant Baidu Inc. BIDU fell about 3.2% in morning trading Tuesday following a handful of new reports about the company. While some investors will be interested in Baidu’s possible new sports venture, others are more concerned about two harsh pieces of regulatory criticism that have hit the company this week.

Let’s first start with Baidu’s potential entrance into the world of professional sports. According to China Central Television, Baidu has purchased the Italian soccer team AC Milan for an estimated $437 million. The deal is expected to be for at least a majority stake in the team.

This move would definitely be an eye-raiser from Baidu, a company with no prior experience in the sports world. While Chinese competitor Alibaba BABA established a sports media group last year, Baidu has not yet indicated what it plans do with its new sports team.  

Chinese President Xi Jinping has announced his intention to transform China into a global soccer powerhouse by 2050, a long-term project for a country that hasn’t had a historic interest in the sport. Nevertheless, soccer has grown in popularity in China over the past several years as teams from the Chinese Super League have showed a new interest in making big-money signings of foreign stars.

It’s unclear exactly what Baidu would do with the team, and it is uncertain whether the reports of the deal are even true. According to Bloomberg, Baidu denied that the company, or its Chairman Li Yanhong, are involved in the deal to buy the team. However, former Italian Prime Minister Silvio Berlusconi, whose family currently controls the team, insists that a Chinese group is close to a purchase.

In other news, regulatory forces seem to be cracking down on Baidu in a tough way. As Reuters reports, China’s internet regulator is launching an investigation into Baidu after media reports claimed that illegal gambling websites used the search engine to advertise themselves.

This regulatory probe comes in the wake of last month’s news that China was increasing its regulatory oversight on search engines following the death of a 21-year-old college student that died after seeking medical treatment that was advertised on Baidu.

Increased regulatory oversight from a country already notorious for its control of mass communication is certainly not good news for China’s largest search engine.

Furthermore, Baidu is receiving flak from investors concerning the sale of its video unit to a group led by Chairman Li. Private Investment firm Acacia Partners LP, which owns over 2.6 million shares of Baidu, is accusing the company of considering an offer for Baidu’s video streaming service that is “far too low.”

Acacia is citing valuations for the video unit of $5.8 billion, while Li’s group offered just $2.8 billion. Baidu has not yet confirmed or denied the offer.

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