Why Baidu’s Shares Stumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese search engine Baidu (Nasdaq: BIDU  ) fell as much as 10% in intraday trading, before recovering to a 6% loss for the day. Several factors contributed to the drop, including an analyst downgrade, and potential legal action against online rival Qihoo 360 (Nasdaq: QIHU  ) .

So what: Baidu has been China’s dominant search engine, but today’s downgrade came on the heels of revelations that the company might take legal recourse against Qihoo for its newly-designed search engine. The smaller Qihoo is known primarily for its Internet security products, but had an agreement with Google (Nasdaq: GOOG  ) to use a modified version of its search engine. Today’s legal rumblings led Deutsche Bank to downgrade Baidu to Hold, although Citigroup’s analysts maintained their long-term Buy rating on Baidu earlier in the day.

Now what: Competitive threats are always a danger for Internet companies, but both Baidu and Deutsche Bank may be overestimating Qihoo’s ability to develop a truly viable alternative. Google’s faced billion-dollar threats for years, and yet has kept a chokehold on global English-language searches. This situation is certainly worth keeping a close eye on, but investors shouldn’t expect Qihoo to suddenly trounce a very well-established Chinese search engine without substantial effort and significant market dissatisfaction with the incumbent.

Want more news and updates? Add Baidu and Qihoo to your Watchlist now.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Baidu.com and Google. Motley Fool newsletter services have recommended buying shares of Baidu.com and Google. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (2) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 24, 2012, at 10:37 AM, tilu13 wrote:

    The reason BIDU has stumbled is because Quihoo's search engine is an aggregating system which means its search includes the search by other search engines, namely BIDU. Needless to say, BIDU is not happy about this. It very aggressive and cut-thoat and it's hard to say if Bidu can fight it...

    See link:

    http://www.youngchinabiz.com/en/news/1419-qihoo-takes-on-bai...

  • Report this Comment On August 24, 2012, at 10:50 AM, tilu13 wrote:

    However, perhaps Bidu will take advantage of this new link to grow it's travel business. I believe Qunar, which Bidu has ownership in, is much like Priceline, and we all know how well that company is doing. It just made a deal with Skyscanner, which is the most visited travel website for Europe. It would seem to me that Quihoo's use of Bidu may, in the end, benefit Bidu.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1994348, ~/Articles/ArticleHandler.aspx, 10/25/2014 3:26:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement