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GOOG v. BIDU: Is Baidu No Longer the ‘Google of China’?

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GOOG v. BIDU: Is Baidu No Longer the ‘Google of China’?

Google Inc. (GOOG) and Baidu Inc. (BIDU) have faced-off in China over the past few years with Baidu managing to beat Google at the search game in the world’s largest economy. This fact alone, however, doesn’t make Baidu a buy. Though Google certainly doesn’t need another feather in its cap, Google is the more attractive stock of the two right now, and the company has reason to be optimistic about its prospects in Baidu’s home market as well.

Ubiquitous Internet giant Google Inc. [[GOOG]] announces it second quarter earnings Thursday, and with its stock price climbing nearly 4% over the last four days the market seems to be optimistic. The optimism is shared by analysts who expect sales growth of 4.3% year-over-year and earnings-per-share growth of nearly 10%.

More interesting for Google’s long-term prospects is not its earnings report but rather a “strange but true” story from more than a week ago – Google’s search engine and other services were briefly blocked nationwide in China for offering pornographic websites in its search results. Sex is taboo in China and most experts argue it was simply grandstanding by China’s regime, but more important than the particular logic of the temporary block was the rise in Baidu Inc. [[BIDU]], China’s largest search provider, shares.

The bump in Baidu’s prices was unjustified because the block was not permanent nor should it become a trend (which would be an obvious benefit to Baidu); counterintuitively, following the logic of there is no such thing as bad press, the blocking of Google – which was trumpeted on state-owned television in the country – actually led to an increase in Google China traffic once the ban was lifted.

Baidu is certainly the Chinese search engine to beat, commanding 64% of its search market compared to Google’s 30%, in other words the Google of China is Baidu. But Baidu is only a buy if its valuation is attractive and it can maintain is dominance against Google in China.

By the Numbers
Market capitalization $10.3 billion
P/E 65.61
Forward P/E 36.47
PEG (5-year) 1.44

Market capitalization $134.1 billion
P/E 31.06
Forward P/E 17.59
PEG (5-year) 1.08

Though a simplistic comparison, Google is more attractively priced than Baidu right now, even when accounting for projected growth over the next five years. Much of this is a reflection of the respective performance of Google and Baidu shares over the last 12 months: Baidu shares have managed to gain more than 2% while Google is down nearly 20%. Google has gotten cheaper.

Will Google Become the Google of China?
One of the fundamental reasons Google trails Baidu in China is Baidu simply has a better search product. As a Chinese-language search engine, Baidu.com is considered to be the leader with a more advanced algorithm that even allows users to search by phonetics – seemingly an arbitrary feature but actually quite important due to the difficulties of written Mandarin. This is an advantaged it is unlikely for Google to overcome any time soon – but surprisingly shifting demographics may make it unnecessary.

Google is the go-to search engine in China for English-language searches, given its expertise in that area, and unfortunately for Baidu the focus on English-language education in China combined with wealth of information in English on the Internet are driving the English-language search market in China to be a bigger slice of the pie. Worse for Baidu, the average Chinese user doing English-language searches is upper-class and urban – a superior profile from advertisers’ points of view.

Baidu also drives a substantial portion of its traffic from a music search services that allows users to search and easily download songs from third party websites – a feature with nothing comparable to it in Google. No longer, Google now offers music search in China – and its search allows direct downloads of free, licensed songs – improving on Baidu (yes, be jealous, in China you can download free, legal music from the libraries of companies like EMI Group, Warner Music, Sony and others).

Lastly, Google is now the exclusive search provider for the country’s largest wireless carrier, China Mobile [[CHL]]. Right now it is not a big deal, but with 488 million subscribers, more than the entire U.S. population and more than the total number of people currently accessing the Internet in China. When cellular users begin accessing the web through their phones – and they will eventually – Google may be handed market share on a silver platter.


Certainly Baidu does plan on rolling-over for Google. Baidu is planning on releasing a peer-to-peer search, possible a very popular product in a country with almost non-existent copyright enforcement, and a rural encyclopedia which would contain thousands of entries geared towards China’s gigantic and largely untapped rural population that is increasing its Internet use by the day.

Nonetheless, Baidu seems to be on the defensive recently despite its large lead in market share. When Baidu’s CFO Jennifer Li’s commented late last month that Baidu is considering acquisitions because the “Internet is at an early stage of its development…and [Baidu needs] to stay ahead” – the cynical takeaway isn’t that Baidu is on the prowl but rather that the company thinks it can’t “stay ahead” through internal product development.

The simple fact is there are a lot of reasons to be optimistic on Google’s chances in this fight. This, combined with superior valuation, makes Google the buy right now, not Baidu.

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Google’s China Woes Strengthen Baidu’s Presence

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Google’s China Woes Strengthen Baidu’s Presence

Baidu, Inc. (BIDU) saw some upside from Google Inc.’s (GOOG) woes, after China temporarily barred its citizens from visiting a host of Google properties, including the main search engine, Google Apps, Google Reader and Gmail for 24-hours.

Baidu, Inc. [[BIDU]], the leading Chinese internet search provider, saw its shares jump nearly 10 percent since Google Inc.’s [[GOOG]] problems began earlier this week. While the temporary ban only affected the English-language Google web sites, the move casted further doubt on Google’s relationship with China, which now has the world’s largest internet audience.

Earlier this week, China’s foreign ministry accused Google’s English-language search engine of spreading vulgar content and instituted a nationwide ban between 9pm and midnight on Wednesday. However, the ban remained in place across many rural areas for a great deal longer than the 24-hours, which could deal a blow to the company’s attempts to gain market share.

Of course, some skeptics believe that the government’s ban was designed specifically to help the local internet search company Baidu. After all, the state’s broadcasting company, CCTV, relies on Baidu for a large slice of its advertising revenues and mounted a harsh campaign against Google this week. How much of a blow this deals, however, remains to be seen.

In the end, Baidu’s close relationship with China will likely continue to pay dividends down the road. Meanwhile, Google, the company’s largest competitor, appears to continue to face problems with the government that could rein in its attempts to gain market share.

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Baidu Drops on Acquisition Speculation


Baidu Drops on Acquisition Speculation

Baidu, Inc. (BIDU) announced that it is reviewing possible acquisitions to extend its lead in the world’s largest online market by users, according to Chief Financial Officer Jennifer Li. These acquisitions could add some uncertainty to its future, and potentially involve additional debt or equity issuance.

Baidu, Inc. [[BIDU]] announced that it is reviewing possible acquisitions to extend its lead in the world’s largest online market by users. Investors pushed shares down more than four percent in early trading amid concerns that any acquisitions would create uncertainty and could involve additional debt or equity issuance to finance.

In the long-term, many industry experts believe acquisitions would be a smart move for Baidu. Experts believe that it may look for non-search acquisitions to diversify its services, but executives say these acquisitions wouldn’t distract it from its main paid-search business. Others are speculating that it may seek acquisitions in the Japanese market where it began.

The move towards action comes at a time when Google Inc. [[GOOG]] is trying to beef up its operations in the area. The U.S. search giant recent announced partnerships with China Mobile and Alibaba in order to extend its position in the market place. However, its paid-search business still pales in comparison to Baidu’s 62.2 percent market share.

In the end, Baidu’s acquisition strategy may not be a favorite for shareholders in the short-term given the increased uncertainty and risk. However, long-term acquisition might be the best way to secure its position in the world’s largest online search market.

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Could Baidu Become the Next Google?

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Could Baidu Become the Next Google?

Baidu, Inc. (BIDU) may have a high share price, but the Chinese search provider still trades at less than a tenth of the value of U.S.-based Google, Inc. (GOOG). However, China’s stunning economic and internet growth has many investors looking overseas.

Baidu, Inc. [[BIDU]] has replaced Google Inc. [[GOOG]] as the world’s most popular country-specific search engine, according to data from ComScore. Unfortunately, Google still operates in the richest country on earth, where advertisers are willing to pay top dollar to reach consumers. However, a crisis in America and continuing growth in China could eventually change that story.

According to the China Internet Network Information Center, internet penetration in China reached 22.6% with 298 million internet users and 279 million broadband users. The report also predicts that wireless Internet will also display a trend of explosive growth. Meanwhile, the commercial value of China’s market has more than doubled over the past year.

Baidu is also looking to enter some key growth areas, including e-commerce. Since over 40% of e-commerce purchases start with a search engine query, there is big opportunity in the country with the largest number of internet users in the world. In fact, more than 40,000 businesses signed up for the beta testing of their e-commerce platform.

In the end, China represents a quickly growing market in terms of both internet users and economic growth. Meanwhile, the country is slowly transitioning from an exporting economy to a domestic consumption economy. As this transition materializes, advertising will become a critical concern and Baidu may become the new Google.

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