This doesn't mean that Google is hard up for money. The tens of millions in after-tax gains that Google will gain from the sale are a mere trickle compared with the billions sitting pretty on its balance sheet.
It also doesn't mean that Baidu is doomed. Remember who owned a small stake in Google before it went public but bailed at significantly lower prices? That's right: Yahoo! (NASDAQ:YHOO). Larger search engines love to nibble away at smaller players as a way to latch on to a promising upstart or a geographical heavy. But there's little point in owning a significant chunk of a company once it's become entrenched as your competitor.
That's where Google and Baidu find themselves these days. Baidu is the search engine of choice in the world's most populous nation, but Google is huffing and puffing as a close second. They're not similar companies, of course. Baidu's emphasis is strictly regional, while Google is a global powerhouse. That partly explains why Google commands a $120 billion market cap, while Baidu is a much smaller $2.6 billion entity.
Baidu is profitable, and its net profit margins, now up to 20%, are growing rapidly. It's merely waiting for China's online economy to develop. Despite the popularity of online games by the likes of NetEase (NASDAQ:NTES) and The9 (NASDAQ:NCTY), the Internet is just starting to gain an audience in China, where 1.2 billion of the 1.3 billion people have yet to make the online migration.
That will change. Search-engine giants such as Google, Yahoo!, and Microsoft (NASDAQ:MSFT) are beefing up their presence in China. The economy is booming. Three of our stock newsletters have singled out investing opportunities in China, including NetEase's recommendation to Motley Fool Rule Breakers newsletter subscribers.
So is Google really out of the Baidu sweepstakes? Maybe not. If Google's choice to unload its meager stake in Baidu drives the Chinese firm's share price lower, that could lead to a lower overall price for an eventual buyout. Of course, that's assuming that Baidu is even up for sale. With such a promising market, if I were Baidu, I wouldn't rush to fall for the first suitor who approaches on bended knee.
Longtime Fool contributor Rick Munarriz speaks two languages fluently. Neither is Chinese. He does own shares in Baidu but holds no financial position in any other stocks mentioned. Microsoft is aMotley Fool Inside Valuepick. The Fool has adisclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
