Baidu Breaks $100, but It Can't Break Bears

For the first time in more than a month, shares of Baidu (NASDAQ: BIDU  ) hit triple digits.

However, perhaps the biggest surprise to China's leading search engine breaking above $100 today is that it got a pretty bearish analyst reaction yesterday.

Maxim Group initiated coverage with a sell rating, slapping the stock with a gloomy $80 price target.

Maxim Group has its reasons to be pessimistic, naturally. The firm sees Baidu's margins contracting as it reaches out to smaller advertisers. This comes at a time when Qihoo 360 (NYSE: QIHU  ) has disrupted the search market with an engine of its own that launched this summer. When one also factors in Baidu's push to matter in the tricky-to-monetize mobile market, Maxim Group feels that a bearish outlook is warranted.

Well, let's break that down.

China's economy is improving, and it's why many analysts are starting to sing a different tune when it comes to growth stocks in the world's most populous nation.

Macquarie Group analysts now believe that Youku (NYSE: YOKU  ) -- the fast-growing yet profitless streaming video leader in China -- may be positing its first profitable quarter.

Gee, if the monetization prospects for chunky video are improving, what does that signal for search and mobile?

Stateside investors used to have a negative opinion about mobile monetization, but then Facebook (NASDAQ: FB  ) broke the mold. As soon as Mark Zuckerberg projected that mobile will be more lucrative than its desktop client, investors began to see the benefits of the smaller screen. The ads will be more valuable because they're not merely scattered off to the side.

Baidu has been beaten down in recent months, so it may not seem right to call Maxim Group a contrarian here. However, the bearish call comes at a time when the economic news out of China has been encouraging, and many of the country's growth leaders are starting to bounce back.

Baidu now has one more bearish analyst to prove wrong.

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  • Report this Comment On December 20, 2012, at 2:16 PM, rwilliams8 wrote:

    Rick,

    You know anything about Baidu announcing a "cloud phone" tomorrow? Google it.

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