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Why Baidu Shares Are Surging 11% So Far This Week

By Rich Duprey – Oct 22, 2021 at 12:08PM

Key Points

  • Baidu is the go-to marketplace for advertisers.
  • Regulators might force popular social media platforms to let their content appear in search results.
  • That could drive even more advertising dollars Baidu's way.

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The Chinese search giant is getting a backhanded boost from the government.

What happened

Shares of Baidu (BIDU -5.44%) were up 11% since last Friday's close, as of 11:10 a.m. EDT today, according to data provided by S&P Global Market Intelligence, after it was reported Chinese regulators are looking into forcing rivals like ByteDance and Tencent to display their social media content in internet search results.

So what

Baidu is the dominant internet search engine in China. Alphabet's Google is banned from the country, so Baidu has no real competition and owns around 83% of the market.

Finger pressing China's flag on computer keyboard

Image source: Getty Images.

Forcing social media companies to put their content on Baidu's pages would obviously make its engine even more popular, further solidifying its stranglehold on search, but it would take advertising dollars away from the social media companies and channel it toward Baidu.

The search engine is already the country's premier destination for advertisers, with year-to-date online marketing revenue up 22% from the same time a year ago, and its online advertising service revenue is also 20% higher. 

China has been cracking down on tech companies as Beijing attempts to reel in not only the millionaire and billionaire company founders who were beginning to attract cult-like followings, but to also ensure that the popularity of the companies with the general population doesn't become a threat to the social order imposed.

Now what

Although Baidu is a tech stock itself and potentially a target of any enforcement action Beijing undertakes, it has largely escaped scrutiny by regulators. That's undoubtedly because it scrupulously toes the party line, prohibiting forbidden words, phrases, or images from coming up in search results. 

Now the government could be rewarding it, either wittingly or not, with a potential large stream of revenue that would be diverted from the social media outlets.

Baidu might be a beneficiary for the moment, but that could all change quickly. The head of China's Ministry of Industry and Information Technology told the government newspaper People's Daily he wanted greater oversight over the internet and his agency would seek to root out monopolistic power. Considering Baidu's dominant position, that makes it a possible target for a crackdown of its own, and it's why investing in Chinese stocks, or stocks dependent upon China for most or all of their revenue, is a risky endeavor.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Baidu, and Tencent Holdings. The Motley Fool has a disclosure policy.

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