At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
Bankers bank on Baidu
By now, you've heard the news: Google
This, it seems, was the final straw for Google. The company that initially kowtowed to Beijing in 2006, agreeing to "censor some results" on its Google.cn search engine, now says it "may well" have to "shut down Google.cn, and potentially our offices in China."
They've had all they can stand, and they can't stands no more!
Shares of Chinese Internet search giant Baidu
According to UBS, because Baidu and Google account for 95% of all Internet searches in China, Google's departure will leave Baidu essentially unopposed in the country. Transferring Google's market share to Baidu increases the value of the latter's shares (in UBS's estimation) to as much as $523 -- and merits an upgrade to "buy."
Likewise Piper Jaffray, which thinks there's a 35% chance that Google will wind up packing its bags -- with the result that Baidu's annual revenues could leap 30% to 40% this year. And Deutsche Bank: Google's threat "benefits Baidu.com under almost all scenarios."
As you can quickly discern from a glance at each analyst's "record" on CAPS, these are three of the smartest bankers in stockpicking, each ranking in the top 20% of investors we track. And you know what? They're probably right this time as well. Google's threat probably does make Baidu a "buy."
Why? Well, basically, I see three ways that this showdown can play out: First and most obviously, Google can do what it's threatened to do. It's demanded free rein on its business in China. When China doesn't give it, Google walks. End of story. Game, set, and match -- Baidu. Alternatively, Google can cave, admit it was bluffing, find some face-saving means of coming to an amicable agreement with the Chinese, and continue business as usual (or the Chinese variant thereof).
There is, of course, the third option: Victory for Google. China could cave. The government could admit it was wrong all along about censoring Internet access for its citizens, pledge to refrain from Internet hacking, and turn its vast resources to worthy endeavours like finding "forever homes" for stray kittens, and developing a perpetual rainbow machine. Yeah, and monkeys might fly out of my ...
But I digress.
Check your rainbows at the door
The most likely scenario is, of course, the first one: Google makes its play. Yahoo!
Result: China gives Google's ultimatum the cold shoulder, and Google walks.
The sad fact of the matter is, as much as we'd all love to see "Good" triumph over "Evil" in this contest, as a matter of international law, China looks well within its rights in insisting that foreign companies, operating within its borders, play by whatever rules it sets. Recent history is replete with analogous examples: France imposing fines on Amazon.com
With precedent on its side, and Baidu standing ready to pick up any Internet search-slack that Google's departure might create, China simply does not need Google. It's got no reason to admit it done wrong, beg Google's forgiveness, and agree to the company's demands.
And so Google will retire gracefully from the fight, holding the moral high ground, but ceding the field of battle -- and hundreds of millions in Internet search revenues -- to Baidu.
Intel, Coca-Cola, and Microsoft are Motley Fool Inside Value picks. Baidu and Google are Motley Fool Rule Breakers recommendations. Amazon.com is a Motley Fool Stock Advisor choice. Coca-Cola is a Motley Fool Income Investor pick. Intel is a Motley Fool Options Buy Calls recommendation. Microsoft is a Motley Fool Options Diagonal Call recommendation. Fool contributor Rich Smith has no position in any of the stocks named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1174 out of more than 145,000 members. The Motley Fool has a disclosure policy.