Qihoo 360 Won't Be the Death of Baidu

Shares of Baidu (Nasdaq: BIDU  ) tumbled 6% -- and Qihoo 360 (NYSE: QIHU  ) moved 4% higher -- after a Wall Street Journal report revealed that Qihoo was dumping its search partner.

Did you think that Baidu was Qihoo 360's search partner? Oh no. The company behind China's leading Web browser and suite of online security products is actually dismissing Google (Nasdaq: GOOG  ) . The news of Baidu's nearest rival losing a key partner would seem to be good news, but the fear here is that Qihoo 360 will gain traction with its homegrown solution.

We'll see about that.

Qihoo 360 is a great unheralded growth stock, and it proved it last night with a strong second-quarter report. Revenue more than doubled to $72.8 million, and adjusted earnings climbed 56% to $20.6 million. There are now 425 million active monthly users across the company's PC products and another 120 million people relying on its mobile security products for smartphones in China.

However, if being the Web browser of choice dictated search superiority wouldn't Bing have displaced Google by now?

Perhaps more importantly, if Qihoo 360 with Google didn't slow Baidu down as it amassed the lion's share of China's booming search business, why should Qihoo 360 fare any better on its own?

Yes, Qihoo 360 has an exciting opportunity here. It can create its own brand in search, and it won't have a problem attracting tire kickers. A daily average of 83 million people are now relying on Qihoo 360's personalized start-up page, and if someone's searching for something it's awfully tempting to click on the search box hanging out on a home page. However, it's never as easy as that. (Nasdaq: SOHU  ) runs a popular portal, yet its seasoned Sogou search engine has a mere sliver of the market.

Qihoo 360's move may seem to create uncertainty, but all it ultimately does is replace whatever it represented of Google's market share with its own.

Baidu will be fine.

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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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  • Report this Comment On August 22, 2012, at 12:22 PM, constructive wrote:

    "However, if being the Web browser of choice dictated search superiority wouldn't Bing have displaced Google by now?"

    Actually, the reverse happened. Chrome overtook IE.

  • Report this Comment On August 22, 2012, at 1:39 PM, jmbring wrote:

    think you're confusing browser with search engine, folks...evidence that Chrome works as intended:^]

  • Report this Comment On August 23, 2012, at 1:28 AM, vv234 wrote:

    Unless the core developers from Baidu have flocked to Qihoo, I do not think Qihoo has any technical expertise to build a search engine to compete with Baidu any time soon. Search engine market has a much higher barrier to entry, as witnessed here in the US. Qihoo may get some short term hype right now, we'll see how long it will last.

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