Daily Tech Snippet: Friday, February 26

• Baidu Shares Rise 14% On Revenue Beat: Baidu Inc. posted revenue that topped analysts’ estimates as the Chinese Internet search provider’s investments in mobile begin to bear fruit and attract advertising. Sales rose 33 percent to 18.7 billion yuan ($2.9 billion) in the December quarter from a year earlier, the Beijing-based company said in a statement. That beat the average analyst estimate of 18.5 billion yuan, according to data compiled by Bloomberg. Mobile revenue made up 56 percent of total sales in the quarter, up from 42 percent a year earlier, Baidu said. The company’s dominance in search as more users shift to using mobile devices is helping offset the impact of a Chinese economy growing at its slowest pace in 25 years. Chairman Robin Li is also investing in services such as home delivery and online video to drive growth beyond advertising and help Baidu compete with Alibaba and Tencent. Baidu’s American depositary receipts rose as much as 14 percent to $179.90 in extended U.S. trading after the results were released. The stock has lost 16 percent this year. Investors are keeping a close eye on Baidu’s margins. Tencent, Alibaba and Baidu are now vying for supremacy in an on-demand services industry primed for growth as more people turn to their smartphones or the Web to order food, schedule beauty treatments or hire helpers. Users of such services could rise 29 percent to 400 million by next year, according to Shanghai-based IResearch. The rising cost of competing in online services is spurring consolidation, including the combinations last year of fashion sites Meilishuo and Mogujie, travel-site operators Ctrip and Qunar, and group-buying startups Meituan.com and Dianping.com. Baidu has had to keep spending on its video-streaming service IQiyi and main online commerce site Nuomi to keep pace with Alibaba’s and Tencent’s expanding rival platforms. Chairman Li and another executive this month offered to buy Baidu’s entire 80.5 percent stake in the IQiyi business, a deal that will shore up the search giant’s margins while setting up a potential initial public offering for the unit. “These bold steps help to reveal its core operating margins and the earning power of its monopoly-like search engine business,” HSBC Securities analysts led by Chi Tsang wrote in a report. Selling IQiyi could expand Baidu’s operating margins to 26 percent this year from 20 percent, even while unabated spending on on-demand services erases about 30 percentage points of profitability, they estimated.

• Anonmyous Flyers Posted At Palantir's Campus Warn Employees That Stock Is Worthless - Flyers Are False: Employees of data-analysis company Palantir  may have seen flyers posted on lampposts around their Silicon Valley offices this week featuring a disemboweled unicorn with rainbow blood streaming from its midsection. The posting, dated Feb. 23, warned: "Palantir workers: your common shares are worth $0.00." Palantir staff can relax a bit. The terms of recent fundraising rounds don't contain many of the provisions that can crush the value of common shares held by employees.Fundraising talks last year valued Palantir at $20 billion, people with knowledge of the matter said in June. While Palantir shares are trading lower on secondary markets than they were last year, the same can be said for many stocks, private and public, thanks to a global economic slowdown. Palantir common stock fetches $8.50 to $10 a share on secondary markets before fees, according to a person familiar with the matter, who asked not to be named discussing private share sales. That's a long way from zero. Palantir declined to comment. Several flyers have already been removed, according to Quartz. Someone posting on an online community forum under the pseudonym Palantir_Watcher claimed responsibility for creating the handouts. The person didn't respond to a request for comment. However, the guerilla campaign tapped into an undercurrent of uncertainty and fear about what private companies in Silicon Valley are worth after a wave ofwritedowns and cost-cutting at startups. Venture capitalists and other institutional investors typically hold preferred shares. They are worth more on secondary markets than common stock, which is what is given to employees, often representing a significant portion of their compensation. However, Palantir hasn't given newer investors the sort of preferential treatment awarded to shareholders of companies such as DocuSign Inc., Honest Co., and Stripe Inc., according to an analysis by the technology website the Information. The proportion of funding rounds that gave senior liquidation preferences to new investors was on the rise last year among companies with valuations of at least $1 billion, according to a study by law firm Fenwick & West. That allows those new investors to cash out before common shareholders, as well as earlier investors with preferred shares. During the fourth quarter of 2015, 42 percent of deals had such provisions, compared with 15 percent in the previous two quarters. Investors were also given the right to block an initial public offering that didn't meet their valuation threshold in 33 percent of deals in the fourth quarter, compared with 20 percent in the second quarter, the study said. Palantir had neither provision.

• FoxConn Agrees To Buy Sharp, Then Pulls Back On Discovering New Liabilities: Taiwan's Foxconn has put its takeover of Sharp Corp on hold after discovering previously undisclosed liabilities, sources said, throwing the acquisition in doubt and sending shares of the Japanese electronics maker tumbling. Loss-making Sharp announced on Thursday that it had agreed to be bought by Foxconn, a contract manufacturing firm formally known as Hon Hai Precision Industry Co and major Apple Inc supplier. Just hours later, Foxconn said it would not sign the deal until it had clarified some "new material information" from Sharp. It did not elaborate. Shares slid 14 percent on Friday morning, adding to a drop of 14 percent a day earlier as the planned share dilution looked larger than expected. "That puts the entire deal in jeopardy," Jefferies analyst Atul Goyal said in a note to clients. "This is especially so given the dramatic back and forth that happened between Sharp and Foxconn in 2012, when Foxconn agreed to acquire a stake in Sharp but then later walked away." Two sources with direct knowledge of the matter said the Japanese group had contingent liabilities that amounted to "hundreds of billions of yen." The sources did not elaborate on the nature of the liabilities or the exact amount. Reuters has not seen any documents regarding the new information. The 11th hour delay jeopardizes a deal that would have marked the conclusion to five years of courting by Foxconn founder and billionaire Terry Gou and the opening up of Japan's insular tech sector to foreign investment. The loss-making display maker said on Thursday that it would issue around $4.4 billion worth of new shares to give Foxconn a two-thirds stake. Foxconn's investment is set to total more than 650 billion yen ($5.8 billion), a separate source familiar with the matter said. If a deal does go through, it would boost Foxconn's position as Apple's main contract manufacturer and enable Sharp to start mass-producing organic light-emitting diode (OLED) screens by 2018, around the time Apple is expected to adopt the next-generation displays for its iPhones. But efforts to patch up the deal could be impeded by lingering distrust over the collapse of the 2012 deal to form capital ties. That distrust was one reason Sharp officials, until recently, preferred a lower offer by the state-backed Innovation Network Corp of Japan.

• Microsoft will pay about $400 million for software developer tools startup Xamarin, according to people with knowledge of the agreement.The deal was announced Wednesday by both companies without terms. Xamarin had sales of about $30 million for 2015 and expects to approximately double that in the current year, said the people, who asked not to be identified because the details of the purchase aren’t public. Microsoft Is Buying a Company That Is Key to Its Cross-Platform Future: Microsoft today says it's acquiring mobile app development startup Xamarin for an undisclosed sum, giving the company a tool for building mobile apps that can work across iOS, Android, and Windows phones. Xamarin, which has 15,000 customers including large brand names like Coca-Cola and JetBlue, allows developers to code in a single programming language while designing an app to look native to each platform. Xamarin also offers a way for developers to test those apps using thousands of cloud-hosted devices. One of the four-year-old startup's main products relies on Microsoft's Visual Studio software, so this acquisition is a natural pairing.