Baidu poised to benefit from Google vs. China battle


Given all the contention with the Google vs. China war, there’s a lot to be lost: Google can lose an estimated $300 million to $600 million if it pulls out of the country, China’s image can be further tarnished on the human-rights front. At least one company will benefit tremendously from this conflict, and it is the search-engine giant in China: Baidu Inc.

Whether Google will actually exit China is still up in the air, but Baidu is repeating the fruits of this uncertainty. A day after Google announced it may pull out of China, Baidu’s stock jumped 13 percent. Before Google made its announcement about its future in China on January 12, Baidu’s stock price was below $400 a share ($386.49 to be exact), and as of Thursday, its closing price nears $500 at ($497.60), a 28.7 percent increase.

Google has been fighting a losing battle in the country, coming in second with 15 percent to 30 percent of the market share according to some estimates, a fraction of Baidu’s estimated 60 percent share.

Google’s decisions will have both short- and long-term implications for Baidu, according to Dick Wei, JP Morgan & Co. analyst. In a research note, he wrote:
Short term:

Given the uncertainties in business, we believe some advertisers are holding back, at least temporarily, search marketing campaigns on Google.

Long term:

In the longer term, we believe Google’s weakened image in China should benefit Baidu.

There’s still plenty of room for Baidu to grow, according to Morningstar Inc. analyst Iris Tan. She notes the company’s paid-search revenue increased at a 128 percent annual rate since 2004 and will grow 41 percent compounded annually during the next five years.

In a note, she wrote:

We think the near-term business prospects for Baidu look promising. As the Chinese economy continues to rebound, the private sector has benefited from better funding sources and demand recovery and is keen to spend more on advertising to grow sales. … We estimate that Baidu currently covers less than 1 percent of the addressable market of small and medium enterprises in China, and there is plenty of space for the firm to grow. Outside of its core paid search business, we expect Baidu to invest in a number of promising growth areas, including mobile search, online video, and e-commerce through a joint venture with Japanese partner Rakuten, but we don’t see meaningful sales contributions from these business ventures in 2010.

So while this Google vs. China debacle gets sorted out, we know for sure it’ll have an impact on Baidu.

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