Personal finance
Burger King slims down for success
The Penguin-Random House merger: 3 takeaways
Dunkin' weathers storm to attract crowds
Inside Wall Street: Bank weathers its own storm
How Sandy will affect shipping business
The whopping US rally that wasn't
Disney acquires Lucasfilm for $4B
Late-inning earnings plays
Gilead's 'son of Viread' passes first test
Auto sales expected to stay strong into 2013
Why Yamana shares are soaring
Archer Daniels Midland is boring and cheap
Stericycle finds treasure in trash
Don't follow Icahn into Netflix
How to trade the US presidential election
David Einhorn is shorting iron ore
What's next for Exxon after Rosneft buy?
Who's right, Main Street or Wall Street?
Hershey shareholders sue for child labor records
China's growth picks up
Europe offsets Johnson Controls' Asia gains
CSX took too heavy a beating
In retail, pessimism doesn't pay
Illumina should reconsider Roche's offer
Is Baidu's China reign over?
Baidu's (BIDU +2.79%) stock, which has fallen to $110 from a high of $130 earlier in the year, has a fair share of bears claiming that the company's dominance in the Chinese search market is over. However, in contrast with these views, we think Baidu's fundamentals are strong.

Specifically, we think that Baidu's search market share will remain high despite an increase in competition, the company will be able to capitalize on the growth in mobile ad spending, and it will be able to increase diversification of its revenue streams due to services like Ting and iQiyi.

Search market share will remain high

While increasing competition in the Chinese search market is a concern for investors, we think that the Baidu will grow its market share slightly over our forecast period. We think that Baidu's focus on search quality will leave it superior to competition, especially since building high quality search algorithms is something that can be difficult for a new entrant.

Additionally, since regulatory barriers in China favor local players, the company is relatively immune from international threats. Even if local players take some of Baidu's potential market share over our forecast period, and Baidu's market share remains flat, our price estimate would fall marginally. You can assess the impact of a change in Baidu's market share on the company's value by using our tool below.

Mobile opportunity will be lucrative

At present, only about 40% of the Chinese population accesses the Internet through mobile phones, and less than 15% of China's residents have a 3G connection. Low 3G penetration combined with the high economic growth expected in the Chinese market, makes us believe that the proportion of Chinese residents using smartphones and 3G connections will increase. This is likely to cause an increase proportion of the number of mobile to PC web page views, which in Asia grew to 20% in 2011 from 8% in 2010.

As a greater percentage of users access the Internet via a mobile phone, Baidu will be presented with an opportunity to make money via mobile advertisements. While Baidu is struggling to monetize its mobile traffic, which grew 100% year-over-year in the third quarter, we expect Baidu to make gains in mobile advertising in the next couple of years.

According to research firm eMarketer, Chinese mobile ad spending was a meager $100 million in 2011, and is expected to grow seven times by 2016 to approximately $780 million. Since we think that Baidu will be able to attract new users to its based on brand name and keep them meaningfully engaged via a solid mobile platform, we expect the company to be able to meaningfully capitalize on the increase in mobile ad spending.

Display ads get boost with new products

Baidu's management has been attempting to diversify the company's revenue streams to ensure that it is not overly reliant on search revenues. We think that that management has built a solid product base which will help them achieve this objective.

For example, Baidu's music service Ting is likely to see growth in its user base due to Google's exit from the Chinese online music market. Additionally, Baidu's YouTube-like service, iQiyi, is growing rapidly, posting monthly unique visitor growth of 62% quarter-over-quarterr03; to 407 million. We think that the success of these two products can drive display ad revenues and make the division a much bigger contributor to Baidu's overall value.

Risk factors: Increasing competition

While we think Baidu will be able to maintain its search market share, we also think that it is overly reliant on its search division. If Qihoo (QIHU -0.24%), or any other competitors gain market share in the Chinese market, Baidu's revenues could see substantial falls. Investors will need to closely watch how competition impacts Baidu over the longer term and look for any strategic initiatives that management releases about combating the effects.

We currently have a $125 price estimate for Baidu, which is approximately 10% above the current market price.

Для печати
Microsoft will 'die and disappear' in next few years
Whole Foods' freshness starting to wilt
In a war of attrition, Microsoft will beat Apple again
Asbury Automotive sees strong earnings momentum
Student debtors get the runaround
What to keep in your money survival kit
First-date coupon use is on the rise
Groupon offers NYC dinner in the dark
The worst credit cards of 2012
Post-Sandy, banks waive fees
Homeowners spared costly hurricane deductible
7 ways to commit financial suicide
Why are car loans so easy to get?
Best credit cards after bankruptcy
Get more cash for your old clothes
5 fee-free ways to help Sandy victims
After a flood, frugality can be dangerous
After the storm: Rebuild or move?
My unexpected $2,400 vet bill
Best credit cards for holiday shopping
Downside of a higher retirement age
Prepaid cards are not gift cards
Is the economy destroying love?
Financial lesson from a football game
Book Christmas flights before Black Friday
6 ways to earn extra holiday cash
Holiday shopping? Avoid this retail trick
Many holding out for Cyber Monday
SiriusXM drives straight race to $3 a share
Sandy: Beware the bubble in storm stocks
Starbucks: Buy it, own it, love it
4 Canadian value stocks
What's the White House worth?
Stocks are immune to Washington
EMC strengthens RSA business with acquisition
Russia garners another favorable valuation call
Goldman Sachs slashes partnership ranks
Inside Wall Street: Cheers from Bud and Diageo
4 favorites for a housing rebound
Is Baidu's China reign over?
In 2013, Apple, Facebook will fly, Intel will die
Is AOL's turnaround for real?
Stock buyback blitz continues
Anheuser-Busch pushes higher-alcohol beers
Baidu: Searching for growth in China
Twitter vs. Facebook: The war heats up
Would Disney buy Hasbro?
Vending-machine pizza prepares for US debut
Amazon lockers coming to Staples
Are customers becoming less loyal to Apple?
Focus on earnings, not fiscal cliff
Evergreen stocks: 4 favorite dividend ideas
Visit Statistics