Baidu Is Better Than That

If ThinkEquity analyst Henry Guo is right, Baidu (Nasdaq: BIDU  ) is in trouble.

Encouraged by the prospects of Qihoo 360's (NYSE: QIHU  ) emerging threat in search, the analyst is lowering his price target and his near-term expectations for Baidu. Guo now sees revenue for the current quarter that's about to end falling below the midpoint of the company's initial outlook. He's also banking on Baidu issuing conservative numbers for the year's final quarter.

He is lowering his price target on Baidu from $180 to $150. Bulls will argue that $150 is still bullish. It's a better-than-30% hike up from here. However, it's never a good sign when an analyst is whittling down forecasts.

Guo's channel checks show that the search engine that Qihoo launched this summer is holding steady at 10% of the market. He feels that Qihoo will have to control 15% to 20% of the market to have a material impact on attracting advertisers, though for now the company is turning to Google (Nasdaq: GOOG  ) to help drum up a monetization plan.

Qihoo at 15% to 20% would be problematic for Baidu, which currently commands 75% to 80% of the market. Would Qihoo's growth come at Baidu's expense, or will it rub out smaller players including Sohu.com's (Nasdaq: SOHU  ) Sogou?

Investors obviously need to be monitoring this situation closely. If Baidu does indeed begin to lose serious chunks of market share, it won't just be Guo lowering his projections.

However, if Baidu is able to maintain its market dominance, the stock has never been cheaper. The "Google of China" is trading for just 18 times next year's earnings, even though it's growing a lot faster than that.

Keep an eye on the situation, and possibly consider buying both Baidu and Qihoo to cover both bases.

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The Motley Fool owns shares of Baidu.com and Google. Motley Fool newsletter services have recommended buying shares of Baidu.com, Sohu.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.

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 September 27, 2012, at 4:25 PM, TruffelPig wrote:

    Why do I not see any discussion on browsing using the mobile phone here? That is where the growth really is.

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