BIDU Stock: Is Baidu Inc the Next Google?

This Is Big for BIDU StockThis Is Big for BIDU Stock

Baidu Inc (ADR) (NASDAQ:BIDU) stock has been great for long-term investors. Those who bought Baidu stock in 2015 had to endure an especially bad summer, with losses of some 40% due to Chinese stock market woes. Still, Baidu has the legs for both sprinting and endurance contests. Baidu has plenty of cash—up to $11.0 billion—and it can use it to advance short- and long-term growth targets, not to mention buyback potential.

Those who bought Baidu stock when it bottomed out in September and held it are grinning in approval. After a bullish earnings presentation, BIDU stock spiked on Wall Street. Baidu stock closed at $156.00 on Thursday and “woke up” at $176.00 on Friday. The Chinese group, which runs China’s leading search engine, posted revenue of $2.88 billion in the fourth quarter of 2015, up 33.1% year-over-year. Beyond its financial results, the Chinese group is growing.

Baidu claimed having 657 million monthly active users from mobile searches in December—21% higher than last year. And Baidu is expanding at breakneck pace. In 2015, Baidu made significant progress in expanding its online marketing platform and further expanded transaction services.

If more evidence of growth were needed, 56% of its revenue came from mobile versus 42% a year earlier. In the end, Baidu reported revenue of $10.2 billion, up 35.3%.

As for guidance, Baidu expects to continue growing at a fast pace. Its guidance is for revenue of $2.30–$2.46 billion for the first quarter 2016, meaning 21.1%–25.5% higher than a year ago.

Baidu is not just a simple search engine; the company offers its users 57 apps, from community affairs to e-commerce. It runs an online Wikipedia-style service and if that weren’t enough, it is also exploring artificial intelligence and smart cars (it could acquire Nokia Maps), and the company is considering a system similar to Uber. In other words, Baidu’s model is Google.

Baidu is the fourth-largest domain in the world, falling only behind Google, Facebook, and YouTube. That’s enough reason for anyone not to underrate Baidu’s strength. (Source: Alexa, last accessed February 26, 2016.)

The company has seen a spike in marketing and advertising revenue on its mobile platform. This alone accounts for half of the company’s revenue.

But Baidu’s main asset is the Chinese market itself.

In China, mobile adoption has been faster. China and many other Asian countries prefer a different app distribution model than in the Western world. Asian users download apps from telecom companies or other entities, such as Baidu. In the West, the preference is to download from such entities as Apple, Google, or Amazon.com.

Moreover, in China, when a user wants to buy a train or movie ticket, he or she does not need to visit a specialized app. Users can buy these items directly from Baidu. This centralizes traffic, maximizing advertising revenues. In fact, Baidu has revived the old centralized portal concept that made Yahoo! popular in the first place.

Like Google, Baidu is developing driverless, or self-driving, cars. (Source: “Baidu Enters the Global Race for Driverless Car Domination,” Bloomberg, January 26, 2016). For now, its focus is not to go head to head with the crowded field of tech companies working on this technology in the West. Instead, Baidu can rely on China itself, which has the fastest-growing car market in the world. When Google is ready to sell its driverless car, it will work well in the United States; however, different driving conditions in China will give Baidu unparalleled advantages in its home country.

Having said that, Baidu is now ready to expand beyond its borders, starting in Latin America. Will this affect users in the United States? Not yet; they will continue to use Google. However, American or European companies interested in buying advertising in Asian markets (Baidu is not only in China) will likely look to Baidu first.

The next big step for Baidu will be to persuade Western businesses to advertise on its mobile platforms. Companies can choose from the search engine and the app store. Given that China, despite its “slump,” continues to grow faster than the West, advertising on Baidu could yield better results than it might on Google. It won’t be long before Baidu brings its A-game to Silicon Valley, which should be worried about the Chinese giant by now.

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