Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



How the "Twitter of China" Could Crush Baidu’s Future

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Social may soon become Baidu's (NASDAQ: BIDU  ) Achilles' heel in search, mobile, and more.

For some time, China's largest search engine could always count on its partnership with SINA  (NASDAQ: SINA  ) Weibo, a Twitter-like service, to infuse Baidu products with social information. But now that China's biggest e-commerce retailer Alibaba has bought shares in Weibo, Baidu investors should be scared. Not only may Baidu lose its social edge, but the Alibaba-SINA deal could also spell trouble for Baidu's future. 

What Alibaba sees in Weibo
In late April, Alibaba bought an 18% stake in Weibo that valued just the Twitter-part of SINA's businesses equal to the company's entire market cap -- $3.3 billion. That's huge. Currently, the market cap is $3.7 billion-meaning that Weibo still accounts for 89% of SINA's value, even as SINA earns revenue from businesses like its online portal. You might think that's outrageous, but it's not.

Whether your read about SINA from a Western or Eastern source, SINA has become synonymous with its Weibo service and vice versa. While other Internet conglomerates, like Tencent and Netease, also have Weibo platforms, SINA's still seems to be the most popular among the Chinese. That's why Apple's mobile operating system has SINA Weibo pre-installed in China.

And as more and more Chinese come online through mobile, SINA Weibo growth will skyrocket. Currently, there are about 564 million people on the Internet. While only 31% accessed the Internet through a mobile phone in 2012, that number is sure to grow quickly -- especially because there are over 1.1 billion people with access to mobile phones.

With more users on its platform, Weibo has plenty of opportunities ahead of it -- and Alibaba knows that. Over the next three years, Alibaba expects its partnerships will net about $380 million in advertising and commercial revenue. How might this play out?

If it's any indication, SINA Weibo has shown its potential to sell physical goods. Back in December, Weibo ran an e-commerce test with the Xiaomi -- a stylish, smartphone manufacturer. In the experiment, Xiaomi let people reserve for one of their new phones by tweeting. The result? In less than five minutes, Weibo was bombarded with 1.3 million Xiaomi phone reservations! 

If similar experiments go well for Alibaba, then the e-commerce giant has the option to buy up to 30% of Weibo. And, who knows... Alibaba may swallow the company whole in the future.

All this would be bad for Baidu.

How Aibaba-SINA could end Baidu
Like Google with Google+, Baidu has tried to bolster its products by adding social information from SINA Weibo. Since July 2012, Weibo has been integrated into Baidu's mobile operating system and cloud services in what seems to be an effort to keep search and non-search competitors at bay.

Unfortunately, China's tech landscape seems to be converging. You may have heard that Ailbaba has moved into the search and mobile space. And Baidu should be scared.

If you don't think these products are a big threat to Baidu, look at it this way:  At its simplest level, Alibaba lets Chinese merchants sell their goods online on its e-commerce websites. Meanwhile, Baidu lets merchants advertise products online. If Alibaba's search engine and mobile operating system can grow into a formidable business, then there'd be little need for merchants to leave the suite of Alibaba services and advertise on Baidu.

That's where SINA Weibo comes into play. While Weibo may seem to only be helping Alibaba sell goods on its social network, the Alibaba partnership could become something more. Weibo could eventually become Alibaba's social arm. If that happens, then Baidu would probably sever its ties with SINA. In the end, Alibaba will gain the social data needed to bolster its mobile OS and search engine to take on Baidu. And, given that Alibaba has a clear size advantage – its market cap may be as high as $120 billion – social may be all Alibaba really needs to crush the $33 billion business that is Baidu.

Should you bet against Baidu?
While it's certainly possible that this Alibaba-SINA deal could be the end of Baidu search, I don't think that'll happen anytime soon. Alibaba is a big company, but it's still an e-commerce one at heart. 

It's expansion into search and mobile OS, and its stake in Weibo, is cause for concern; but don't forget that Baidu has been in the search business for over a decade. That's a big competitive advantage for Baidu. 

For now, I think you should hold onto your Baidu shares, but be wary. Tech is a fast-changing sector, and whatever new moves Alibaba and SINA make may be all they need to take out Baidu.

Luckily, you can profit without investing (further) into a specific e-commerce or search company. Instead, you can invest in the one company that makes those tech businesses possible.

Think about this: The amount of data we store every year is growing by a mind-boggling 60% annually! That's a big reason why one company has gained 300% since The Motley Fool recommended it.

To make sense of this trend and invest in our winner, we've created a new report called "The Only Stock You Need to Profit From the NEW Technology Revolution." In it, you'll find out why this company still has plenty of room left to run. All you need to do is click here -- it's free.

Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 13, 2013, at 11:36 AM, vb4 wrote:

    A lot of speculation in this article.

    Baidu sells adverts for products AND services.

    When planning your next holiday, are you going to find flights and hotels on alibaba search? I don't think so. It's much more likely that you'll turn to Baidu.

    When your need to find a fancy new resaurant to take your girlfriend out for her birthday, you'll turn to Baidu.

    When your car breaks down and you need to call a local garage, you'll turn to Baidu.

    Apart from a Chinese recession, Baidu should do just fine for long term investors.

  • Report this Comment On July 15, 2013, at 2:39 PM, Pkylie wrote:

    Yet another clueless MF writer passing off as an expert !

    Two totally different market segments.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2535259, ~/Articles/ArticleHandler.aspx, 10/22/2016 12:26:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 15 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
BIDU $176.76 Up +1.59 +0.91%
Baidu CAPS Rating: *****
SINA $76.29 Down -0.51 -0.66%
Sina CAPS Rating: ***