Google (GOOG) may be “the” search name in the Western half of the globe, but things are remarkably different in the eastern hemisphere. In Asia — and Eastern Asia in particular — search engines like Sogou, Qihoo and Naver are the go-to names that web surfers have bookmarked. Of all the names an investor may want to consider as an alternative to an aging Google trade, however, it’s Baidu.com (BIDU) that tops the list.
Baidu dominates China’s web search market the way Google dominates North America’s, controlling more than 70% of that arena most of the time. The two companies aren’t carbon copies of one another, though … and investors couldn’t be more thrilled about having some variety on the menu. The question is, which one’s the better bet right now?
A Tale of Two Search Giants
If the recent relative action from the two stocks is any indication, then Baidu is the name traders are betting on — big-time. The stock’s rallied from $94.60 at the end of June to the current price around $131.00. That’s a 38% pop, compared to practically no progress at all for Google shares in July.
The prod for the run-up was twofold, kicking off with news of a key acquisition, and followed up later in the month with solid earnings news.
On July 16, Baidu let investors know it was spending $1.9 billion to buy a fully controlling interest in app store 91 Wireless. 91 is no slouch — since getting into the app-download business in 2007, the company’s served up 10 billion downloads. The word is, the cost of the acquisition is 40 times 91 Wireless’ 2012 revenue. It’s not exactly a bargain, but given the accelerating land grab for web-properties in China, Baidu certainly could have done worse. The market sure loved it anyway.
Just a few days later, Baidu reported a great Q2. Revenue was up 39% on a year-over-year basis, and operating per-share profits of $1.22 just topped estimates of $1.21, even if down a couple of cents from Q2 of 2012.
The clincher, however, was when Baidu.com upped its current-quarter revenue estimate to the tune of around 6.0% higher than previous outlooks. The company’s mobile-driven revenue is starting to roll much better than it has been.
As for Google, well, it didn’t have the best second quarter. Per-share earnings fell from $10.12 a year earlier to $9.56. The market didn’t see the shortfall coming, either — the pros were looking for $10.78. The earnings dip came in spite of the 19% improvement in revenue.
Based strictly on recent events, the knee-jerk decision would be for a newcomer to choose Baidu.com rather than Google. That wouldn’t be the right move, however.