I like Baidu (Nasdaq: BIDU ) . Tim Beyers likes Google (Nasdaq: GOOG ) more. We made our opening arguments over the weekend, and now it's time for our rebuttals.
Let me see whether I can boil down Tim's case to a few bullet points.
- Baidu is limited by geography, since Google is a globetrotter.
- Google is an innovator, and its new Wave appears promising.
- Baidu is simply a bet on the growth of Web literacy in China, and it lacks Google's cloud-computing worldwide upside.
What a country!
As for the geographical limitations, Tim is only partly correct. After all, if you're going to be the runaway paid-search leader in any single country, you want it to be the world's most populous nation in an economy growing well ahead of the rest of Google's playing field. Of course, why are we talking about limiting Baidu's reach to China at all? Enterprising souls all over the world are learning Mandarin because China is becoming a major business partner.
Baidu also launched a Japanese search engine last year. It's hard to crack an established market, and Baidu is still losing money in Japan, but the move is indicative of a company that has global intentions.
Perhaps more importantly, Mr. Market isn't valuing Baidu as a global powerhouse, even if it does command roughly double Google's audience in China. As I pointed out in Friday's opener, Baidu has a market cap of just $8 billion to Google's $140 billion. Baidu's stock can double and still come in at just barely a tenth of Google's price tag.
Don't be fickle
As for Google's innovative spirit, the company can be fickle. I have a good feeling about Wave, too, but this is also the same company that shelved its Lively virtual environment after just a few months. It has also recently pulled out of radio and print advertising, just as new-media operators in China, such as SINA (Nasdaq: SINA ) , are gearing up to move into old-school marketing platforms.
The unpredictable flow from Google's spigot can hurt morale, and perhaps that's why Google executives have been bolting to companies such as Facebook and Time Warner's (NYSE: TWX ) AOL in recent months.
Tim cleverly describes Google's recent move to reprice employee stock options lower as a way to appease employees, but bear with me as I flip on my euphemism translator. Got it! If I punch in "appeasing employees," I get back "hosing shareholders with an insensitive and dilutive move."
The great cloud of China
"What is Baidu's cloud-computing-sized opportunity?" Tim asks in his closing thoughts. "If you can't answer that, don't worry. Rick can't, either."
Now, does Tim really believe that there are no cloud formations in a country 1.3 billion citizens strong? Let's think about this. Cloud computing has had a major stateside push, as it provides cheaper and more efficient solutions over conventional software. Microsoft's (Nasdaq: MSFT ) Office suite is being threatened by Google Apps and Sun Microsystems' (Nasdaq: JAVA ) OpenOffice. salesforce.com (NYSE: CRM ) is on a growth tear as it provides server-stored efficiencies over traditional enterprise-software programs.
As Microsoft knows, China has been a tough market to crack with software, given the rampant piracy there. That doesn't mean superior cloud-computing solutions won't emerge. If anything, in fact, it will be that much easier because there won't be a strong, established, old-school software marketing machine trying to stop the cloud-computing revolution.
Baidu isn't a major player in cloud computing today, but Google wasn't much of a leader just a few years ago. Big G is using its captive audience to push offerings such as Wave and Google Docs, and that's just what Baidu will do when the time comes to make the most of its pole position in Chinese search.
Sorry, Tim. You made a strong argument, but I'm not swayed one bit. Baidu is the stock with the greater upside, even if it's not trading as cheaply as it was when it bottomed out several months ago.
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