Posted on 15 July 2009 Tags: BIDU, GOOG
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: 433.41 +2.05%) 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: 308.75 +3.24%), 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.
Bilibala's comments:
I agree, Baidu's price is too expensive unless it can substand the strong growth of above 40% per year in future.
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