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Internet Giants Baidu.com, Inc. (ADR) (BIDU), Facebook Inc (FB): All-Set for the Next Growth Curve

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Baidu (BIDU)While analyzing an Internet company, I always try to find the answer to one question – Where does the company actually lie in the growth curve? These stocks have a track record of shooting up like a rocket. And, when they touch the trough – their growth story is almost over. In contrast, there are some stocks which are based on pure innovation. And every new innovation develops an interesting investing window – signifying that the growth story just got started. In this article, I have screened three Internet companies which are betting upon their initiatives on mobile monetization. And seeing their play so far, I think their stock will post solid performance in the upcoming quarters.

Baidu.com, Inc. (ADR) (NASDAQ:BIDU)

The Chinese internet giant’s fourth quarter earnings were in line with the market expectations. All credit goes to the continuous penetration in online search marketing and the shift of offline to online ad budgets. Unlike the US, where majority of the population is using the Internet, only 42% of Chinese residents (at the end of year 2012) is using the internet. Out of this, 74% are mobile internet users. Clearly, there is a vast potential ahead for the company to cover the remaining Chinese market with an expansion in online ads.

It is also investing heavily in mobile technology to bring more focused ads on smart phones and tablets. In Nov., 12 the company issued $1.5 billion bonds which it will use to retire existing debt of $350 million. With over $1.1 billion net proceeds from this offering and $3.4 billion cash balance, we can anticipate further investments in existing search and brand ads, mobile searches, e-commerce, online videos, and cloud services. Talking about its online videos initiative, its controlling stake in iQiYi will help the company to increase customer targeting capacity and add a real-time bid solution.

In terms of valuation, its long-term growth rate is more than double the price to earnings ratio. Trading at price earnings growth ratio of less than one (undervalued) indicates it has much room to grow in future.

Google Inc (NASDAQ:GOOG)

Google once again reported strong earnings in the fourth quarter of 2012. Under the strong leadership of Schmidt and Page, Google sites’ revenue increased 22% year-over-year to $8.64 billion mainly driven by Google Shopping, YouTube, and mobile. Despite having only a decade and half of history, Google generated over $51 billion in revenue during 2012 and sports a market cap of $235 billion.

Google’s higher mobile search market share, as compared to the PC search, is helping its shareholders, as mobile advertising spending continues to gain share. With the growing usage of mobile internet, mobile cost per click, and the number of Google advertisers using mobile ads are also showing an increasing trend. As per comScore, Google’s Android OS represented 33.2% of the US smartphone market. In addition, its Android mobile phone software has become the world’s No. 1 wireless OS.

Paid Clicks is another potential driver to solidify its market share, which has increased by a solid 24% year-over-year basis. The figure for paid click growth rose to 9% and cost per click also raised by 2% from the 3Q. I think that Paid Click’s growth is the most important indicator of a healthy advertising ecosystem, as large percentage of Google ads monetize on a non-CPC basis.

Speaking of the hardware revenue, Google sales are in momentum. It’s Chromebook and Nexus 4/7/10 versions have posted solid sales growth. The combined revenue from hardware sales and Google Play generated $2.4 billion. The company is enjoying increased sales from the acquisition of Motorola Mobility. Last year Google’s Motorola Home division was spun-off to broadband communications giant Arris for $2.35 billion. When this deal will finish, Google will have 7.85% of Arris as a result of which Google will own considerable part in broadband technology business too.

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