Monday, January 10, 2011

WTF Is An ADR? Baidu Trades As An ADR (BIDU)

ADR certificate
UPDATE: 1/31
BIDU Q4 EPS of $. 50 versus estimate of $0.46 on estimated revenues of $361 million

After a conversation on twitter this evening a few people asked me what an ADR is (American Depository Receipt). I believe understanding the different between an ADR and a real share of stock is key.

There are quite a bit of ADR's listed in the United States, all have operations over seas and have shares listed on foreign exchanges as well as the United States. Best known example is BIDU.

ADR Definition:
"A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction."
Per Investopedia the risk associated with investing in ADR's which most US investors simply do not

understand is best phrased in this way:

"ADRs do not eliminate the currency and economic risks for the underlying shares in another country. For example, dividend payments in euros would be converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with the deposit agreement. ADRs are listed on either the NYSE, AMEX or Nasdaq."

Check the BNY Mellon site for more information...