Why Baidu.com, Inc. (ADR) (BIDU) Might Not Be the Best Chinese Play

Add all of this up, and it could mean that fewer businesses will be paying Baidu to advertise on its platform, which could significantly bite into revenue growth.

3. Competition
Finally, we get to a company that’s been a real thorn in Baidu’s side for the past year: Qihoo 360 Technology Co Ltd (NYSE:QIHU). Though Qihoo started out focusing primarily on Internet security products, it made a splash into the search game and has been rapidly accumulating market share ever since.

At the same time, it appears that Qihoo 360 Technology Co Ltd (NYSE:QIHU) is offering companies better bang for their buck, as ads hosted on the Qihoo platform are much cheaper than they are on Baidu’s. Though Baidu still holds a commanding lead in search market share, should that start to decline, Baidu could get into an advertising price war with Qihoo, which would have significant implications for Baidu’s bottom line.

How to approach China
While I openly admit all of these risks are valid and worthy of your consideration, I think Baidu is doing the smart thing by spending money today to build a moat that will last into tomorrow. The fact that shares are trading for just 19 times earnings tells me that a lot of pessimism is already baked into Baidu’s stock as well.

But if you’re looking for a safer, less appreciated way to approach China, consider it’s booming auto industry. China is already the world’s largest auto market — and it’s set to grow even bigger in the coming years.

The article 3 Reasons Baidu Might Not Be the Best Chinese Play originally appeared on Fool.com.

Fool contributor Brian Stoffel owns shares of Google and Baidu. The Motley Fool recommends and owns shares of Baidu and Google.

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