Qihoo 360 doesn't want to blow the opportunity.
Speaking at this week's China Internet Conference, Qihoo 360 CEO Zhou Hongyi revealed that the company will turn to Google for paid search ads and launch an open platform so other online companies can piggyback on its 360.cn engine.
TechInAsia.com reports that Hongyi hinted at potential partnerships with Google, Microsoft's
It's a sound strategy. Let all of the little players gang up on Baidu. However, Hongyi will probably soon realize that Google, Microsoft, and Sohu.com may take exception to championing another company's platform.
These are interesting times in China, but the math still doesn't add up.
Baidu has surrendered $9 billion in market value since the reports of Qihoo 360's strength in search surfaced in mid-August, but Qihoo 360's market cap has only grown by $700 million. Is the implication here that China's search market is now worth $8 billion less? Even if one argues that two legitimate players will translate into lower prices per lead, Baidu has spent the past few months growing its presence outside of China.
Investors torn between which side to choose may as well consider both.
Baidu has never been cheaper on a forward earnings basis. Baidu is now fetching 17 times next year's projected profitability, and it's growing a lot faster than that. Qihoo 360 trades at a higher 22 times next year's earnings, but it is also growing considerably faster than its multiple would seem to suggest. There's also the upside to Qihoo 360 if it is able to keep its initial success going beyond the novelty phase.
Either way, China's search market deserves to get the $8 billion back that has been squandered over the past four weeks. Baidu? Qihoo 360? Just buy both.
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The Motley Fool owns shares of Microsoft and Baidu.com. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, Sohu.com, and Baidu.com. Motley Fool newsletter services have also recommended creating a synthetic covered call position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.