Being the top search engine in China is paying off stateside for Baidu.com (Nasdaq: BIDU). Nasdaq added the company's depositary shares to its Nasdaq 100 Index yesterday, sending the shares 3% higher.
It's not the kind of feverish pop that a company typically gets when it is promoted into the more heavily mimicked S&P 500, but it'll do. Baidu is the first Chinese company to be added to the tech-stock-intensive index, a move that validates both China's securities and Baidu's own stature in the tech world.
Baidu has earned its place among the tech-stock elite. In the world's most populous nation, not even Google (Nasdaq: GOOG) comes close to Baidu. Watching over a majority of China's search-engine queries, Baidu stands tall against local search engines like Sohu.com's (Nasdaq: SOHU) Sogou as well as outside threats like Google, Microsoft's (Nasdaq: MSFT) MSN China, and the Yahoo! (Nasdaq: YHOO) and Alibaba combination that is Yahoo! China. In fact, Microsoft eventually just turned to Baidu to populate its pages with paid search ads.
The Nasdaq 100 nod doesn't mean that Baidu will feel more relevant to English-speaking search-engine users. The company recently entered the Japanese market, but it has little reason to expand into more competitive Western markets.
Why should it, really? There will be plenty of growth within China itself over the next several years. Internet penetration in China stood at a mere 12.3% over the summer, and less than a third of that connectivity is through speedier broadband access.
Obviously, there are plenty of geopolitical risks here. Valuation hounds will also point out that Baidu is not cheap, at 96 times next year's profitability. However, Baidu's torrid growth and wide margins made this an easy recommendation for the Motley Fool Rule Breakers newsletter service last year. The shares have gone on to more than quadruple since then.
I still believe in the company's prospects, although not every fellow Fool agrees with me.
That's fine. Opinions are supposed to differ. If everyone were a bull on Baidu, who would be left to buy in?
Oh, that's right, Nasdaq 100 Index buyers will. If you're buying in through exchange-traded funds like the PowerShares QQQ (Nasdaq: QQQQ) you've been soaking in Baidu since yesterday.
Enjoy.
Closed for 15 months – opening 10 days only! Get notified ahead of time as our expert portfolio manager invests $1 MILLION in the best opportunities from across The Motley Fool’s premium investment services. This is the first open since August 2008, by invitation only. Enter email below.
Terms & Conditions
RSS Headlines
Fool UK