I have not looked at Baidu (BIDU) since the end of November. My position on the stock then was to think of it long term and take a long-term bullish position. This is what I wrote back then about looking at the stock long term:
Long term I believe if anyone is interested in investing in the stock, it may be a good buy. It seems the company has a good vision for where it wants to go. The company's "Project Aladdin" is the heart beat of its mobile development.
It has been moving up; will it continue to move up?
There are some analysts who believe it will. Piper Jaffray & Co. reiterated its Overweight rating on Baidu.com, but lowered its price target from $193.00 to $146.00.
"The bottom line is that we remain positive on shares of BIDU. While BIDU shares pulled back through the second half of 2012 due to new competition from Qihoo, a softening Chinese economy, and, to a lesser extent, regulatory concerns about broader China, we believe that the growth profile and valuation remain attractive despite our adjustments today. We continue to view BIDU as the highest quality Internet play in China."
Regulations in China?
There is a new regulation that will force internet users in China to use their real names and this could help Baidu generate revenue. From a commercial point of view, knowing who is searching what (by gender for example) makes a huge difference in how effective ads might be. Since the internet browser will be able to know exactly who is doing what search, ads may be better targeted so more ads might be able to be sold. It will be interesting to see how this law plays out. It is actually an extension of a law that was implemented earlier requiring all "social network" sharing to use real names. Now to see who is going to have to enforce this for half a billion people is yet to be seen.
Baidu has taken a controlling majority in QiYi, China's online video operator. Online video is strategic for Baidu. User numbers and time spent on the site increases Baidu's ability to increase ad revenue.
S&P Capital IQ analyst Scott Kessler reiterated his "strong buy" on shares on Baidu, along with his price target of $160. Competition from Qihoo 360 Technology (QIHU), which has muscled in on Baidu's search business is a challenge. And while Qihoo's shares have gained 22% during the past month compared with Baidu's 12%, Baidu has had a stronger start to 2013. It's gained 10.4% to Qihoo's 8.6%.
There has been competition from Qihoo, no doubt, but Baidu is fighting back. It has shown interest in buying into the online security business of software giant Kingsoft. The move makes sense, if only for Baidu to give Qihoo 360 a taste of its own medicine. Baidu has struggled since Qihoo 360 introduced its own search engine into the Chinese market last year. Baidu's search products would be placed upon Kingsoft security platforms through PC and mobile. This would even out the competition between the two companies. These improved security features are a great benefit to increasing the value of Baidu's offerings.
Long-Term Investing in Baidu
If there are any concerns for the company, it is from two sources, competition and its shift to the mobile market. Do they offer a unique investment opportunity because of growth and value? Internet use will continue to increase in China and the economy appears to be doing better. Baidu is expanding well and I believe it is well positioned for an increase in revenue from ads as the economy in China continue to mend and with the new regulatory atmosphere in the country that will benefit the stock.
Since the first of December BIDU has been working its way up and has gained about 22% in value since that time. The RSI indicator continues to move up and it is very healthy, it does not look like it is slowing down at all. When the stock moved above the upper Bollinger band, it did not move into the over bought position so it is still very strong. The middle BB is now support. If I observe the MACD, I can see the positive divergence that was created and since that time the MACD MA's have continued to move up and into bullish territory. With the markets remaining bullish, I would expect the stock to continue to move up.