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Baidu Is Winning Some Unlikely Battles

Baidu (NASDAQ: BIDU  ) is China's undisputed leader of online search in China. However, the surprising success of Qihoo 360 (NYSE: QIHU  ) in its first two years of dabbling in search -- it has now commanded 25% of China's lucrative market -- finds Baidu broadening its reach into other online categories.

We've seen Baidu make headlines with its pocketbook, acquiring companies to gain an edge in online video, mobile apps, and travel portals. However, Baidu has also been pursuing other Web-based initiatives on its own. Some of them are starting to pay off. 

Internet traffic tracker Enfodesk is reporting that Baidu Map was the country's top mapping application during the first three months of this year. This is a pretty big deal in China, where map apps dominate the mobile app download market. 

Baidu isn't just helping people find their way around. Baidu Antivirus -- the PC virus-zapping software put out by the dot-com darling -- won top honors from software analytics specialist AC-Comparatives. Baidu Antivirus ranked ahead of the pack pitted against China's top 20 most popular antivirus programs. The test analyzes key areas including file copying, archiving, program installations, opening programs, and downloading files.

The accolades come in handy. Antivirus is one of Qihoo 360's two key areas of strength. Qihoo 360 is the market-share leader in online security, and its Internet browser is China's top dog. Baidu's ability to win performance raves should help it gain share from Qihoo 360 in antivirus at a time when Qihoo 360's search platform is posing a challenge for Baidu.

Both companies can still win. They may be jockeying for positions in juicy Internet niches, but China's expanding economy, and growing online migration, provide a one-two punch of octane where it's naive to think that this will be a winner-takes-all game. Baidu is growing at a heady pace, but Qihoo 360 is growing even faster.

Analysts see healthy profitable growth at both dot-com speedsters.  Baidu is expected to grow its revenue at a 52% clip this year, and Qihoo 360's top line is slated to soar 93% this year. Earnings aren't growing as quickly at either company. The costs to expand in new areas are significant, and that naturally weighs on bottom-line results in the near term. If the bets are successful -- and given Qihoo 360's healthy chunk of the search market, and Baidu's strength in mapping and performance accolades in antivirus -- profitability will come along sooner rather than later.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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9/2/2015 3:59 PM
BIDU $148.15 Up +4.58 +3.19%
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