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Searching for the King of Search: Google Inc (GOOG) and More

As the saying goes, the Internet changed everything.  A vast abundance of researchable data became instantly available overnight.  People with a computer and an Internet connection became a finger-click away from an endless stream of information.  Indeed, the search industry that sprang from the World Wide Web led to some of the world’s most valuable companies.

In particular, there are three giants in the search industry that have created hundreds of billions in wealth.  These are Google Inc (NASDAQ:GOOG), Inc. (ADR) (NASDAQ:BIDU), and Yandex NV (NASDAQ:YNDX).  Each company dominates the search industry in their respective countries.  Now that we’re in the age of instant information, it’s worth digging further to find which, if any, of these kings of search are worthy of your investing dollars.

Google Inc (NASDAQ:GOOG)Google Inc (NASDAQ:GOOG) and the Googles of China and Russia

When the name of a company is both a noun and a verb, you know you’ve got a special company on your hands.  Instead of having to reference volumes of an encyclopedia to find more information about a subject, you can simply get on your computer and Google Inc (NASDAQ:GOOG) it.  In January, the company reported full-year 2012 results, and the markets loved what the company had to say.   Revenue soared more than 30% year over year, and has more than doubled since 2008. Diluted earnings per share clocked in at $32.31 per share. Google has a superb compound annual growth rate in earnings per share of 25% since 2008.

Google Inc (NASDAQ:GOOG) recently eclipsed the $800 per share mark for the first time in the company’s history, and the future seems bright.  Google’s dominance in the search industry is evident in the company’s $260 billion market capitalization.

You may not as easily recognize Baidu or Yandex as you would recognize Google Inc (NASDAQ:GOOG), but their businesses are in the same vein.  Baidu is often referred to as the “Google of China.”  The company was hit hard over the last year, falling from $150 per share to its current level of $90 per share.

The market was especially concerned over the company’s most recent earnings report, even though the underlying numbers looked solid.  Total revenue increased 42% in the fourth quarter and 53% for 2012, year over year.  Furthermore, fiscal year 2012 net income increased 58% from 2011.

Unfortunately, even those kinds of growth rates weren’t enough to stop the stock from falling 10% on the day of the earnings announcement.  Interestingly, little in the earnings report implied that the company’s growth is slowing down.  The company expects growth to continue, at least for the near future.  Baidu currently expects to generate total revenues ranging from $945 million to $975 million for the first quarter of 2013, representing a 38.1% to 42.6% year-over-year increase.

Yandex is the premier search firm in Russia.  Unfortunately, Yandex disappointed the markets when it revealed fourth-quarter net income below estimates.  Revenue grew 44% year over year, but the search engine said its revenue growth this year might slow to a range of 28% to 32%.  When a high-growth stock reports that growth will slow going forward, the market rarely views it positively.  Yandex shares trade at roughly the same price as they did a year ago.  Perhaps Yandex’s valuation scared off investors, as the stock trades for a trailing P/E over 30 times.

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