Baidu's Big Drop

Posted by: Bruce Einhorn on October 12

First, the bad news for Baidu investors: the Chinese search engine’s stock price plunged $51 yesterday. Yes, fifty one dollars. In one day. The amazing news, though: Even after that drop, Baidu’s shares are still riding high. The Nasdaq-listed shares are still up 174% for the year.

Contributing to the drop on Thursday was a report from JPMorgan analyst Dick Wei predicting that the company would report quarterly earnings on Oct. 25 slightly below earlier predictions because of the temporary closures of some Internet data centers for technical reasons. Still, Wei is looking at the company’s stock price to rise to $400 by the end of next year as Internet usage continues to grow in China and online advertising gains acceptance.

And what of talk from Google about closing the gap with Baidu? (See, for instance, this BW story that I did a while back about Google’s plans to team up with local partners.) Wei may have prompted a momentary run on Baidu’s shares, but he’s still bullish on the company: “[F]rom a 12-month perspective, we expect Baidu to further consolidate its leading position and increase its monetization rate from growing traffic.”

While the Chinese search market is likely to keep on growing fast, Baidu also isn’t sitting still. The company has launched it first operation outside China, a service in Japan. In another attempt to diversify its revenue base, in August Baidu launched BaiduTV, which enables the company to sell its customers video ads. JPMorgan’s Wei, in his research report, says that more than 50% of Baidu’s traffic comes from non-search traffic. “We expect Baidu to offer more advertising/revenue opportunities in the long term,” he writes.

Some more evidence that Baidu is on a roll, despite the data-center issues: According to a new report from Comscore, Baidu is now ahead of Microsoft in search-engine popularity. Not just in China, but globally. As Mary Jo Foley points out this in this ZDNet blog, there were 3.3 billion searches done via Baidu in August, compared to just 2.2 billion* for Microsoft’s sites. Google of course is far ahead globally. The fact that Baidu is ahead of Microsoft is a sign that Baidu is doing well, although it’s also an indication of how badly things are going for Redmond’s search strategy. (Foley points out that NHN, the big Korean search engine, is close on Microsoft’s heels at No. 5 globally.)

The continued success of Baidu, despite the best efforts of Google, no doubt cheer the company’s investors. But it’s not so good news for critics of Google and other U.S. Internet companies doing business in China. Sometimes people angered by the way the Americans have played along with Beijing’s censorship rules in order to enter the Chinese market argue that the U.S. companies have leverage over the Communist regime. That is, if Beijing insists on the companies censoring the Net, the Americans could just threaten to leave, as if that might make the Chinese back down a bit.

But as the success of Baidu shows, the Chinese have their own domestic (not to mention domesticated) companies. So if the Americans leave, so what? China’s leaders may not care about Googling something as long as they can Baidu it.

* Corrected on Oct. 13

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