Baidu Gets Sticky With Renren

Oct.23.13 | About: Baidu, Inc. (BIDU)

Baidu (NASDAQ:BIDU) is the subject of a new flurry of news bits, including growing ties with social networking leader Renren (NYSE:RENN) and a new financial services initiative, spotlighting the sudden urgency it feels to grow beyond its core search business. The Renren news bits are the most interesting to me, because they highlight the importance of social media to the growth strategies of most major Chinese Internet companies and could also presage an eventual acquisition. The financial services initiative also reflects the sudden rush by Chinese web giants into this area, though Baidu looks a bit late in its arrival to the space.

Let's start off this Baidu news wrap with a look at the social networking (SNS) space, where media are reporting the company has just reached a deal to acquire more assets from Renren. Some once considered Renren a strong bet to become the Chinese version of Facebook (NASDAQ:FB), since it operates a similar site to the global SNS giant and was China's leader in the space. But since its highly hyped 2011 IPO, Renren has failed to find a formula for longer term profits and its shares now trade at about $4 - less than a third of their $14 IPO price.

Over the last 2 years, Renren has been largely overtaken in SNS by bigger web firms, most notably Sina's (NASDAQ:SINA) Weibo microblogging service and Tencent's (OTCPK:TCEHY) WeChat instant messaging platform. Renren forged its first major tie-up with Baidu in August, when the latter paid $160 million for 59 percent of the former's Nuomi group buying site. (company announcement) Now media are reporting that Baidu has signed a new deal to acquire another group of assets from Renren, though the deal doesn't include Renren's profitable game business. (English article) Against the backdrop of these growing ties, I would be surprised to see Baidu eventually buy all of Renren in the not-too-distant future for a relative bargain price.

While we're on the subject of Baidu and Renren, I couldn't resist raising another recent report about a physical brawl between employees of Nuomi and LaShou (LASO), another major group buying site. (Chinese article) The incident reportedly happened in a hotel in the city of Xiamen, and saw at least one LaShou employee seriously injured. Nuomi said the fight represented the actions of individual employees and not the company. There's really not much else to say about this incident, except that it reflects the intense competition in the online group buying space and issues Baidu may face in the future with Nuomi.

Finally, let's take a look at the financial services news, which has Baidu launching a new investment product in partnership with China Asset Management Co. (Chinese article) The product will allow users of Baidu's Baifubao online payments service to use excess funds in their accounts to buy investment products provided by China Asset. In an unusual move, Baidu is saying users of the service can get annual returns of up to 8 percent - a level many observers say could be difficult to attain.

There's not much for me to say about this financial services initiative, except that Baidu is once again late to the area. E-commerce leader Alibaba announced a similar initiative called Yu E Bao earlier this year, and Tencent has also launched a similar product. What's more, both Alibaba and Tencent already have strong bases of web surfers who pay for online services, providing a strong user group for their new financial services products. By comparison, Baidu has far less such customers, since it gets most of its money from advertisers. At the end of the day, I wouldn't expect much from Baidu's new financial services product, though the growing tie-up with Renren could be a bit more interesting.

Bottom line: Baidu's new financial services product is likely to flop, while its growing ties with Renren could result in an eventual acquisition at a relative bargain price.