After months of pessimistic trading, optimism is starting to break through the cracked rose-colored glasses that Baidu (NASDAQ: BIDU ) watchers have been wearing.
Two of the things that would typically weigh on shares of China's leading search engine -- whispers of an acquisition and China's push for real-name registrations -- are being interpreted by some as positives for Baidu.
Shares of Chinese software giant Kingsoft rose earlier this week on reports that Baidu may be interested in buying into the company's online security business. The move makes sense, if only for Baidu to give Qihoo 360 a taste of its own medicine. Baidu's stock has taken a big hit since antivirus software specialist Qihoo 360 introduced its own search engine this summer. Baidu would simply be leveling that playing field with some more skin in this space.
Now, potential buyers usually take a hit. They pay a premium in most cases, and analysts tend to worry about everything from dilution to synergy uncertainties. Well, JPMorgan analysts Dick Wei and Evan Zhou wrote a bullish note backing Baidu if it does in fact go this route.
They argue that a move that would push Baidu search products on Kingsoft security platforms through PC and mobile would be a win-win for both parties. Improving the security features of Baidu searches and rounding out Baidu's offerings would also make a deal worthwhile.
Another unexpected vote of confidence this week came from an Investor's Business Daily article proposing that China's move to demand real-name identification for Internet users will actually help Baidu by encouraging advertisers to pay up for verified consumers.
Baidu didn't take much of a hit on reports that regulators would be stepping up these requirements. Social media sites -- primarily Renren and SINA's Weibo -- are the ones to worry about. Yes, Renren's already requiring real-name users for its leading social networking website. SINA Weibo reluctantly began implementing some checks last year for its wildly popular micro-blogging platform. The real danger here, though, is that this is just the first step of tightening up China's surveillance of cyberspace.
However, the IBD article concludes that "the new regulations aren't necessarily bad news for social media, either."
After turning their backs on China's growth stocks for the past two years, it seems as if Wall Street sentiment is turning positive.
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