Baidu Inc Stock Is Poised to Take on Google If It Must

Advertisement

BIDU stock - Baidu Inc Stock Is Poised to Take on Google If It Must

Baidu Inc (ADR) (NASDAQ:BIDU) is the world’s greatest niche equity, which makes BIDU stock a misunderstood value.

Westerners have a limited foreign understanding of Chinese language and culture, as I expressed here. Moreover, few major countries have had the success China has enjoyed in protecting its companies from foreign competitors.

BIDU has leveraged its understanding of both to create what some regard as an Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) equivalent, the so-called “Google of China.” Despite some disappointment on the earnings report, BIDU stock remains on the path for continued high growth and an eventual clash with Google.

Baidu Is Well Positioned Competitively

Currently, Baidu controls internet search in China, while Google dominates everywhere else. Within China, SINA Corp (NASDAQ:SINA), Sohu.com Inc (NASDAQ:SOHU), and the now-private Qihoo 360 Technology Co Ltd are regarded as its main competitors in its domestic market.

Despite these other companies, Baidu retains an 80% market share in the search engine market within China.

Still, the battle among its domestic rivals may serve as a dress rehearsal for an eventual battle with Google. With the Chinese government keeping Google largely frozen out, the two companies are not actively competing against one another. Still, their similarities and a drive to expand will likely pit them against one another.

For most companies, competing with Google remains a difficult prospect. As mentioned earlier, knowing Chinese market nuances and the blocking of Google by the Chinese government gives Baidu a wide moat. However, BIDU has advantages that will serve the company well even if it starts directly competing with Google.

BIDU Stock Doesn’t Rest on Its Laurels

First, China’s rise brings an ever-growing middle class. It allows BIDU to grow more than Google organically. Google has to create new niches to keep growth going. Baidu merely has to wait for more of the Chinese people to rise into the middle class.

Secondly, BIDU doesn’t rely on organic growth or government protection to succeed. The company has made similar strategic moves to Google. It too derives revenue from advertising. Baidu has also entered the artificial intelligence and self-driving car markets.

BIDU stock also shows promise. The equity trades at about 10% less than its all-time high of $274.97, though it has flattened lately. The BIDU stock price fell 10% when it announced earnings on Oct. 26. Although it beat on its latest quarterly earnings, the stock fell short on revenue. This drop seems strange as the PE ratio now stands at around 32.

This metric hardly prices BIDU stock for perfection. It certainly doesn’t compare to the PE ratios of Amazon.com, Inc. (NASDAQ:AMZN) or Netflix, Inc. (NASDAQ:NFLX). Amazon and Netflix have had lower average revenue growth than BIDU stock despite much higher PE ratios.

Despite Wall Street’s feelings about the earnings report, revenues grew by 28% year-over-year. The company missed estimates by only $30 million. This represents a modest drop in growth as revenue has grown by an average 37% per year over the last five years. Analysts project about 20% growth for 2017 and over 23% growth for 2018.

Final thoughts

Over the long haul, BIDU stock remains on track to further its dominance in China and later face the other major search engine company, Google. Although the company faces challenges within its domestic market, it’s been able to hold on to most of its market share.

With China continuing to emerge, BIDU stock will have more opportunities for organic growth than will Google. Additionally, Baidu isn’t resting on its laurels as it enters the same kinds of markets Google has entered in other countries.

While revenue fell short, BIDU remains on track to grow revenues by 20% or more annually for the foreseeable future. Hence, investors looking for a home-grown niche equity that can take on Google should look no further than BIDU stock.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/bidu-stock-poised-take-google/.

©2024 InvestorPlace Media, LLC