We're now up to three analyst downgrades for dominant Chinese Internet search engine Baidu (Nasdaq: BIDU ) so far this month, and we're only a third of the way through! That doesn't even include the two cuts from last month. Are these competitive fears related to Qihoo 360 (NYSE: QIHU ) justified or overblown?
Jefferies kicked off the festivities earlier this month by cutting the company's rating to hold. Again, Qihoo was the culprit. Analyst Cynthia Meng even thinks it's likely that Baidu will miss Street estimates in the fourth quarter. The very next day, Raymond James moved its rating from strong buy to outperform, saying that Qihoo's entry adds "increased uncertainty" for Baidu. The analyst remains bullish overall for the long-term, but thinks that Baidu's market share has taken a hit down to 58.3% since Qihoo's entry, down from the low-to-mid 60% threshold.
Credit Suisse, come on down! Analyst Wallace Cheung has dropped his rating on Baidu to underperform, along with a $83 price target that's well below current prices. Mobile device monetization will prove a challenge and the overall ad market is weaker than expected. Naturally, Qihoo came into play again as a competitive threat. Cheung believes Baidu's domination of the Chinese Internet search market is "waning."
I think these competitive concerns, while somewhat valid, are being overblown. The current sell-off doesn't quite fit. Shares were trading near $134 in August before these fears escalated, and the stock is now down over 20% from those prices, all on the possibility that Qihoo can be to Baidu what Yahoo! (Nasdaq: YHOO ) is to Google (Nasdaq: GOOG ) : a distant second.
Baidu now trades at "just" 27 times earnings, which is actually cheap relative to the growth the company has a habit of putting up. In fact, it's averaged a 66 multiple over the past five years while growth has remained robust. I see the dip as a buying opportunity, plain and simple, and might even add to my own personal position before everything is said and done.
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