Internet stocks have great potential, but many of them are just downright expensive. But what if I told you that there is one Internet company with solid financials, huge potential, and a reasonable price tag? Don’t think it’s possible? Just take a look at Baidu Inc (ADR) (NASDAQ:BIDU) stock.
Dominating China’s Search Engine Market
Baidu is known as the “Google of China.” According to China Internet Watch, the company has around 70% market share in the Chinese search engine market. (Source: “Chinese Search Engine Market: Stats, Trends and Insights,” Chinese Internet Watch, last accessed February 10, 2016.)
Note that when it comes to online search, there is something called the “network effect.” To put it simply, the more people using a product or service, the better it becomes. For search engines, the one with the largest market share will provide the deepest and most contextualized search results.
Therefore, by being the number one search engine choice for Chinese Internet users, Baidu’s success in this segment is almost guaranteed to continue.
Solid Growth in Financials
Despite being the king of the hill, Baidu is growing at an impressive rate. For instance, the company’s mobile search monthly active users (MAUs) grew 21% year-over-year in the month of December 2015. (Source: “Baidu Announces Fourth Quarter and Fiscal Year 2015 Results,” Baidu Inc, February 25, 2016.)
Baidu also managed to monetize on that growth. In the most recent quarter, the company’s total revenue surged 33.1% year-over-year to $2.9 billion. The bottom line improved even more. Baidu’s net income skyrocketed 663% to $3.8 billion, although a large part of that came from gains through the exchange of Qunar shares with Ctrip.
Explosive O2O Business
If the search engine business is not exciting enough for you, how about some online-to-offline (O2O) action? In China, O2O is probably the hottest thing right now. Companies are competing to bring consumers from online channels to physical stores.
The highlights in Baidu’s O2O growth come from “Baidu Nuomi,” a group buying site, and “Baidu Takeout Delivery.” Combine them with the company’s digital payment service “Baidu Wallet” and you have a full-fledged O2O platform. In the fourth quarter of 2015, gross merchandise volume (GMV) from Baidu’s O2O platform surged 397% year-over-year to $2.3 billion.
The Bottom Line on BIDU Stock
Since the company is growing like a startup, you’d expect it to be expensive. But that’s not really the case. Trading at $176.88 a share, Baidu stock has a price-to-earnings multiple of just 11.66.
For those looking for value in the Internet industry, BIDU stock should be high on your watch list.