Google Inc (GOOG): A Must Buy Search Stock

This Quarter

BIDU will announce the results of its last financial quarter, on February 11. It expects revenue of $0.979-$1.01 billion in 4Q2012 i.e. YoY increase of 37.6% to 41.8%. Analysts are expecting revenue to be $998.94 million and EPS to be $1.29. The company has beaten analyst estimates in the last four quarters.

Competition

Qihoo 360 Technology Co Ltd (NYSE:QIHU)’s emergence is currently the largest threat to Baidu. It is the biggest threat in terms of market share erosion. The company is focusing on providing its users new and innovative services. The search market newbie is hiring a lot of ex-Google executives, to wage war on Baidu’s market share.

QIHU has disclosed that it is trying to achieve a market share in the range of 15-20%. We believe it has still a long way to go, to pose a serious threat to Baidu. Some are saying that Qihoo search engine traffic is derivative because it is basically an aggregator of search results. This means that it provides different search engine options to users e.g. users can see Baidu and Google Inc (NASDAQ:GOOG) results on Qihoo website.

Conclusion

The ridiculously high valuations of internet-based companies (e.g. LNKD, AMZN) have made investors wary of another bubble in online stocks. Therefore, 19x Forward P/E valuation of BIDU is very cheap as compared to the industry and poses a lower risk for investors. The company expects growth in the range of 40-50% for the year, which makes it nothing short of a gold mine for investors.

BIDU has the largest market share (approx 80%) in China with Google Inc (NASDAQ:GOOG) and Qihoo way behind. This is a high-growth search market which is currently growing by more than 60% per year. For the time being, Baidu can be regarded as the king of the Chinese search because Qihoo market share is still significantly small, be an immediate threat to Baidu. If investors have a risk appetite for the threats listed below, Baidu is an excellent long term bet.

Threats

An investment in Baidu has the following risks.

  1. The biggest risk is Google’s reentry into the Chinese search engine market. It will have a catastrophic impact on Baidu’s stock price because right now Google Inc (NASDAQ:GOOG) has an extremely big brand name and it will steal away a major portion of Baidu’s Chinese market share.
  2. There have been reports that Chinese companies listed in the United States face the risk of being expelled from US exchanges, due to unsatisfactory implementation of US securities law.
  3. The RPS can slow down in the long run because of increased number of choices available to advertisers. This increase will reduce the pricing power available to Baidu and thus bring down profits.

The article A Must Buy Search Stock originally appeared on Fool.com.

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