Is Investing In Baidu Stock A Good Idea?

| About: Baidu, Inc. (BIDU)

Is investing in Baidu (NASDAQ:BIDU) a good idea? To fully understand this question, you have to first of all know and understand what Baidu is and why it is so successful. In short, Baidu is in China what Google (NASDAQ:GOOG) is in the rest of the world. It is wildly successful because it reaches a 1-billion-plus market that Google cannot touch because of Chinese Internet censorship laws.

Baidu Vs. Google

While Google stock is presently a lot more valuable than Baidu stock, there are two compelling reasons why investing in Baidu is a much better idea than investing in Google. As one professional investor has noted, Google has pretty much reached its "saturation point." This means that the odds of Google getting large numbers of new users is slim to none. However, because there are still tens of millions of Chinese users who have yet to tap into the Internet's full potential, Baidu has the potential to grow exponentially in the years ahead.

It should also be noted that Baidu's competition, much like Google's competition, is far behind. Its most outstanding competitor, Qihoo (NYSE:QIHU) has a 16% share in the Chinese Internet market. Baidu's share, on the other hand, stands at about 80%. Google's share of this market has slipped from about 15% to 3%.

Another good reason to invest in Baidu is that Baidu is doing well in reaching the growing number of people who are getting online via mobile phones. Company CEO Robin Li recently announced that Baidu has invested nearly $2 billion in acquiring a store for smartphone apps. Company records show that Baidu is investing additional funds in market research related to mobile phone Internet users.

As was noted above, the price of Baidu stock is quite low compared to that of Google; however, prices are going up as Baidu has reported strong second-quarter earnings that surprised stockholders and analysts alike. CNN has noted (see link in previous paragraph) that this announcement caused Baidu stock to rise 17% in value, and Yahoo (NASDAQ:YHOO) notes that stock values are still on the up and up.

What Are the Downsides?

Are there any disadvantages to investing in Baidu stock? The simple answer is yes, there are some valid reasons why investing in Baidu stock would not be a good idea. However, it is important to note that this can be said about all companies, no matter how large or small they are or how they are performing in the stock market. Investments are by nature risky, and no matter how high the profit potential is for any given company, there is also a possibility for an investor to lose a considerable amount of money if the company underperforms for any reason.

One of the main disadvantages of investing in Baidu stock right now is the fact that the SEC has recently announced that it is investigating Baidu and other Chinese Internet giants, such as SINA (NASDAQ:SINA) and SOHU (NASDAQ:SOHU), for potential fraud. The news of these investigations alone caused Baidu stock to fall; if the investigations yield significant evidence against Baidu, then the shares would likely fall once again.

There are also concerns about China's economy in general, as economic problems in China would naturally affect Baidu's advertising and other earnings negatively. However, as TheStreet recently pointed out, an increasing number of Chinese companies are turning to Internet advertising and this number is not set to go down anytime soon. Furthermore, as The Globe and Mail has noted, Baidu seems to be suffering not so much from low profits and bleak future predictions as it is from low sentiment. In other words, there has been a low opinion of this company and its stock despite its achievements and positive forecasts about its future.

While no stocks are guaranteed to turn a high profit, Baidu's record, present and past achievements, and future outlook are all very positive. The company's financial reports for Q1 2013 and Q2 2013 show outstanding achievements and make it highly likely that this company will continue to grow and do well in the foreseeable future. The fact that Baidu is on the up and up, but stock prices are still relatively low. That makes it an ideal investment for those who want to turn a significant profit in the near and distant future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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