Baidu Can Capitalize on China's E-Commerce Growth Without Selling a Thing to Consumers

Its stake in group-deal site is only the tip of the iceberg for Baidu's e-commerce potential.

Mar 8, 2014 at 1:00PM

Shares of Baidu (NASDAQ:BIDU) climbed to a new all-time high on Thursday after CEO Robin Li noted that Chinese e-commerce is growing six times faster than e-commerce in the U.S. Li told reporters that annual growth of online commerce in China is at about 60%, compared to 10% in the U.S. Although Baidu, the Chinese equivalent of Google (NASDAQ:GOOGL), isn't primarily an online vendor like Alibaba -- 24%-owned by Yahoo! (NASDAQ:YHOO) -- it stands to capitalize on the rapid growth in e-commerce.

Baidu can capitalize on the influx of online advertising that e-commerce companies will likely spend as revenue and opportunity increase. Meanwhile, Baidu has joined in on the e-commerce market with its acquisition of from Renren (NYSE:RENN).

Direct benefit
Baidu's newly acquired can directly capitalize on the strong growth in online spending. The Groupon-like service had an estimated $120 million in sales in the second quarter last year. Comparatively, Alibaba, the nation's largest e-tailor, generated $1.78 billion in revenue in the third quarter.

Yahoo! shareholders have been rewarded over the last year or so, as Alibaba's revenue has climbed dramatically. In the third quarter, it climbed 51%, year over year, but that was a deceleration from the 61% growth the company achieved in the second quarter. As a result of the slowdown, Yahoo! shares were punished when it reported its fourth-quarter earnings.

Baidu's new revenue stream could see even better growth than Alibaba. Not only does have a much smaller base to grow from, it's also a relatively new format for buying goods. The company was founded less than four years ago in 2010. Additionally, Baidu can leverage its much larger user base to attract new buyers to

Renren, for its part, is shedding the business as its social media platform loses ground to more popular platforms like Tencent's WeChat and Sina's Weibo. The company initially planned to keep 41% of, allowing Baidu to increase traffic to the site by leveraging its search audience. In January, Renren sold its remaining stake to Baidu. It may use the cash to sell more advertising and games for its social network.

Indirect benefit
Baidu's biggest business is its search engine, which funnels traffic around the web. Like Google, Baidu generates the vast majority of its revenue through online advertising. In the fourth quarter, Baidu had 451,000 active online advertising customers spending about $3,450, on average. Baidu's revenue per online marketing customer increased 35%, year over year, in the fourth quarter.

Baidu can sit back and continue to see its revenue grow at that pace as more people start shopping online, but it could continue employing its strategy of copying Google to benefit even further.

Google quietly rolled out a new advertising product in late 2012 called Product Listing Ads, or PLAs. These ads are designed to help e-commerce sites sell products people are already searching for -- basically leveling the playing field a bit with

Google has seen great success with PLAs, increasing the cost per click by 80%, year over year, in the fourth quarter, according to Adobe. Meanwhile, PLA spending is estimated to have quadrupled over the course of 2013. Baidu can grow its business even faster by implementing a similar service.

The product everyone is buying
Baidu has a huge chunk of the market for a product that's rapidly increasing in demand: online advertising. With e-commerce growing at a 60% clip, Baidu can do better than grow its average revenue per advertiser at 35%. Current estimates expect revenue growth of 46.9% for 2014, but if Baidu takes further advantage of the huge growth in online commerce, it could outperform that.

Baidu isn't the only stock with serious growth potential
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google, and Yahoo!. The Motley Fool owns shares of 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers