The information superhighway and the real world roadways are coming together in China now that Baidu
Bitauto -- a leading provider of car information and current pricing throughout China -- will be the exclusive supplier of automotive content on Baidu's Aladdin platform.
Terms of the yearlong agreement aren't being made public in this morning's announcement, but it's safe to say that Bitauto needs this more than Baidu.
It's been a pothole-filled road for Bitauto since going public at $12 last year. The stock has gone on to shed more than a third of its value. Revenue climbed 57% to $16.7 million in its latest quarter, with earnings growing even faster. There clearly isn't a problem with the popularity of its Easypass and Transtar online marketing platforms for new and used cars, respectively. Bitauto's downfall is that it's a small Chinese dot-com upstart at a time when few companies outside of Baidu can be trusted by growth investors.
The Bitauto IPO was an easy sell last year. China's booming economy finds folks trading in their bicycles for cars. The same thesis that fueled interest in oil producer PetroChina
Being a story stock isn't enough these days.
Baidu, on the other hand, continues to be China's dot-com darling. Shares have slipped a bit since hitting all-time highs in April, but China's leading search engine continues to deliver healthy growth with chunky margins to boot.
The valuation gap is substantial between today's partners. Bitauto is fetching less than 11 times next year's projected profitability. Baidu's stock is being exchanged at more than three times that multiple. We can't weigh these two companies on forward P/E ratios alone, naturally. Baidu has a long history of thumping Wall Street targets. Bitauto is packing an earnings warning for the current quarter in this morning's press release.
The two companies are moving at different speeds, but they both ultimately want to head in the same direction.
Would you rather buy Baidu or Bitauto today? Share your thoughts in the comment box below.
Motley Fool newsletter services have recommended buying shares of BYD and Baidu. 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.
Longtime Fool contributor Rick Munarriz has only been to China once, but he relishes admiring its dot-com revolution from afar. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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