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Is Baidu Finally Bouncing Back?

By Rick Munarriz - Apr 11, 2013 at 8:00PM

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China's leading search engine stages a rare rally.

Baidu (BIDU 2.13%) investors finally caught a break yesterday.

Shares of China's leading search engine soared 6% on Wednesday. The stock hasn't had a single-day rally this strong since last summer.

There wasn't any Baidu-specific news to trigger the run, and it's not as if the bulls have any dibs on "I told you so" bragging rights. Baidu's stock is merely recovering after hitting a two-year low last week. Even after yesterday's pop, Baidu has been absent from this year's tech rally with its own shares trading 17% lower in 2013.

Baidu's fallen out of favor since Qihoo 360 (QIHU.DL) introduced a rival search engine last year. Even though Qihoo's 13% share of China's search market has come largely at the expense of non-Baidu rivals, worrywarts fear that the presence of a legitimate competitor will slow Baidu's already decelerating revenue.

Baidu's still growing. Analysts see revenue and earnings climbing 43% and 21%, respectively, when the former dot-com darling reports its first-quarter results later this month. Thinning margins and a seasonal sequential decline in revenue are problematic, but bargain hunters will be quick to point out that Baidu is trading for just 13 times next year's projected earnings. That appears to be too cheap for a market leader that is growing considerably faster than that.

Baidu has historically traded at a forward earnings multiple that's in line with Russian leader Yandex and at a healthy premium to global top dog Google, but Baidu's slide has rewritten those rules. Baidu's now trading at a much cheaper multiple than Yandex, and it's even fetching a discount to Google which happens to be changing hands these days at nearly 15 times next year's projected profitability.

A strong quarter on April 22 could change that, of course. Proving that it can continue to post strong results as Qihoo 360 would go a long way toward restoring faith in the out-of-favor company that became the poster child of China's Internet revolution. If so, Wednesday's comeback rally will be the first of many to come.

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Stocks Mentioned

Baidu, Inc. Stock Quote
Baidu, Inc.
$139.09 (2.13%) $2.90
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,246.33 (4.20%) $90.48
Qihoo 360 Technology Co. Ltd. Stock Quote
Qihoo 360 Technology Co. Ltd.
Yandex N.V. Stock Quote
Yandex N.V.
$18.94 (-6.79%) $-1.38

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