Follow the leader
While Google had to pioneer online search, digital ad networks, and new concepts like multi-screen advertising, China's Google-esque Baidu gets the fortunate opportunity to simply imitate Google. Even more, Baidu investors can keep tabs on Google's success to gauge Baidu's potential. And, these days, as online advertising transitions from desktop to a multi-screen, soon-to-be-mobile-dominated online environment, there are a lot of looming uncertainties. So, that's why when Google reported better-than-expected third quarter results this week, Baidu jumped too -- Baidu investors are watching Google particularly closely to help them gauge how Baidu will fare in the transition, too.
Though Google beat EPS and revenue estimates, there's more reason behind the stock's jump. The biggest uncertainties for search and online advertising, going forward, is just how well advertisers will be able to transition to a multi-screen environment. Google has recently launched new advertising tools, called Enhanced Campaigns, to help advertisers do just this, and investors were concerned the transition could negatively impact results. But, as it turns out, the transition is going quite well, according to Google management. So, the fact that the company was able to beat estimates amid such a significant transition impressed investors.
Baidu investors, therefore, now have incrementally greater confidence that Baidu will manage this complex transition to mobile successfully.
The Motley Fool's Dan Dzombak also attributes an analyst upgrade and a better-than-expected Chinese Q3 GDP figure as reasons for Baidu's rise.
But what about Facebook and LinkedIn?
Why did Facebook and LinkedIn move in tandem with Google, too? Facebook and LinkedIn, though not search businesses, also benefit from online advertising. Advertising accounts for 88% of Facebook's revenue and a much smaller 28% of LinkedIn's revenue. Also, Facebook and LinkedIn can also relate with Google and Baidu when it comes to the looming uncertainties of a transition to a mobile environment.
While Facebook has largely proven to investors that it will excel in a mobile environment, with 41% of the company's advertising revenue now coming from mobile (up from virtually 0% one year ago), its desktop users still generate significantly more revenue per user.
LinkedIn's situation is less certain since the professional social network doesn't distinguish its mobile revenue from its desktop revenue. But there are indications that the company is doing very well on mobile. For instance, when LinkedIn revamped its iOS and Anroid apps, management said in its second quarter earnings press release that "mobile activity increased, with mobile homepage engagement rising over 40%, and increasing levels of social actions, article views, and mobile profile edits when compared to the past version."
Google's results, therefore, also provided incrementally greater confidence for Facebook and LinkedIn shareholders that the companies will be able to successfully and lucratively monetize mobile.
Keeping tabs on mobile
As Google, Baidu, Facebook, and LinkedIn continue to navigate the important transition to mobile, investors in any of these four stocks would be smart to keep an eye on the other others' progress. At the same time, however, investors should keep in mind that each of these four businesses are very different, and deserve their own respective analysis. When prices move in tandem, don't be afraid to question the underlying reasoning for the move. Though following the leader seems to make sense this time around, it might not always be rational and could create a selling or buying opportunity. Mr. Market often makes some very silly moves.
That said, all four companies have been on a roll with their transition to mobile. Though deciding whether these stocks are buys at their fresh all-time highs isn't necessarily a black and white decision, holding certainly looks more enticing than selling, with mobile looking as monetizable as ever.
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