Can Baidu Bounce Back?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

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?

A tale of five downgrades
Last month, Deutsche Bank downgraded Baidu on concerns that Qihoo's search engine was off to a strong start, and was followed shortly by ThinkEquity for the same reasons.

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.

Who's next?

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.

BIDU P/E Ratio Chart

Baidu P/E Ratio data by YCharts.

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.

Now's about a good a time as any for investors to read up on Baidu's solid fundamentals, which The Motley Fool has outlined in a brand-new premium report all about the Chinese search engine. In it, you'll find an overview of Baidu's opportunities and the risks it faces. Grab a copy today by clicking here.


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

Read/Post Comments (0) | Recommend This Article (7)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

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: 2051973, ~/Articles/ArticleHandler.aspx, 10/25/2016 6:34:31 AM

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...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
BIDU $180.86 Up +4.10 +2.32%
Baidu CAPS Rating: *****
GOOGL $835.74 Up +11.68 +1.42%
Alphabet (A shares… CAPS Rating: *****
QIHU.DL $0.00 Down +0.00 +0.00%
Qihoo 360 Technolo… CAPS Rating: **
YHOO $42.59 Up +0.42 +1.00%
Yahoo CAPS Rating: **