Baidu's Lose-Lose Scenario

Baidu (Nasdaq: BIDU  ) can't catch a break.

As shares of Google (Nasdaq: GOOG  ) were hitting all-time highs earlier this month, Baidu's stock was taking a breather.

There was a disconnect for investors. Google is a global juggernaut. Baidu is a China play. Google is championing the popular open-source Android platform. Baidu is a company with dominant market share in China that is currently trying to swat away a pesky Qihoo 360's (NYSE: QIHU  ) brazen foray into search.

However, something funny happened when it was Google's turn to get smacked around. As Big G's shares took a hit on yesterday's prematurely distributed earnings release, Baidu's stock also took a hit.

Really?

Yes, Google came up short. What does that have to do with Baidu's upcoming quarterly report? Google has actually been staging a partial retreat out of China. Qihoo 360's emergence came after it booted Google as the search provider on its popular browser. Why would paid search weakness outside of China have an impact on the world's most populous nation? It certainly wasn't pleasant to see Google generating 15% less in average revenue per click than it did a year earlier, but what does that have to with China, where the economy and Internet migration rate are still growing at headier clips than the balance of the world?

Google is a bellwether, but the market needs to know what it's actually measuring. Shares of Baidu and Facebook (Nasdaq: FB  ) tumbled yesterday afternoon the moment that Google's stock began diving before trading was temporarily halted.

Why Baidu? They are entirely different companies in entirely different markets at entirely different points in their growth cycles. Why Facebook? Could the reason that paid search cost-per-clicks are down -- even though the volume of clicks rose sharply -- be that advertisers are taking advantage of Facebook's popularity to get more bang for their sponsored buck?

Maybe it's just me, but I think we should wait until Facebook reports next week -- and Baidu the week after that -- before jumping to the wrong conclusions.

Betting on China
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Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Baidu, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Baidu, Facebook, 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.


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