Shares of Baidu (Nasdaq: BIDU ) have fallen every single day this week.
China's leading search engine has stumbled 14% on reports that Qihoo 360 (NYSE: QIHU ) is gaining market share at Baidu's expense.
Deutsche Bank is validating the bearish thesis, downgrading Baidu from buy to hold and slashing its price target from $186 to $137. The firm's channel checks suggest that Baidu has surrendered 4% to 9% of market share in search. Deutsche Bank sees the trend continuing until at least early next year.
Yes, it's problematic, but the math doesn't add up.
Qihoo 360 has seen its stock soar 28% this week, but this is also a much smaller company than Baidu. Put another way, Baidu has shed $6.6 billion in market value this week, but Qihoo 360's value has only risen by $615 million.
Where did the $6 billion go? Is China's search market suddenly worth $6 billion less now because there's an upstart making waves?
Yes, Qihoo 360 is not going to be able to monetize that traffic as well as Baidu does. It makes sense that a fragmented market could be worth less in sum. However, even under the stateside scenario where Bing began to make waves and strike deals to grow its reach, it's not as if Google (Nasdaq: GOOG ) took a hit.
Oh, and how about Google? Qihoo 360 dismissed Big G to roll out its own search engine. Google would seem to be the bigger loser than Baidu. It's the one that got dumped. However, Google's stock essentially hasn't moved from where it started out the week.
It seems as if the market is either punishing Baidu too hard or not rewarding Qihoo 360 enough. It might even be a little bit of both.
Either way, I know that China's search market isn't worth $6 billion less just because one company is using its market-leading Web browser and anti-virus software to push its search engine.
If Baidu's response is to crash Qihoo 360's strongholds of browsing and security, would those markets gain $6 billion in value? Of course not.
If the competitive landscape of search in China is changing -- and it's coming not from Baidu, Google, or Sohu.com's (Nasdaq: SOHU ) Sogou, but a surprising player in Qihoo 360 -- one an even argue that the value of China's search market is about to get even more valuable.
Some things just don't add up.
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