Baidu (NASDAQ:BIDU) is making solid moves in the technology sector and the company looks well positioned to grow in the short to medium term. Recently, the company joined hands with Rukaten, a Japanese video sharing website like YouTube. However, Baidu has not stopped there and the company has now followed Google (NASDAQ:GOOG) by taking part in Tizen, an operating system for smartphones. Baidu also has an app store, 91 Wireless, which it recently purchased from Netdragon. Baidu's Map has also managed to increase its market share last year. These acquisitions and the increasing market share of Baidu's map shows that the company is set to achieve substantial growth over the next twelve months. Let's look at these factors and how the growth of the company will be affected.
What Will 91 Wireless and Tizen Bring?
Tizen is an open source operating system similar to Android. Along with Baidu, 15 other giants are taking part to shape up Tizen, some of which include, ZTE, Softbank and Sprint (NYSE:S). The final shape of the operating system is not clear yet so it is a bit difficult to compare it with Android. However, we do know that Samsung, one of the software's backers, is coming up with a Tizen installed phone. Other than that, Tizen is not limited to smartphones, and can also work on Laptops, Tablets, TVs, printers and cameras.
Baidu recently purchased 91 wireless with an investment of $1.85 billion . It was the biggest acquisition in the Chinese market. Expected results show that 91 Wireless is proving to be a profitable investment. Analysts at Maxim group anticipates that Baidu's revenues and net income will beat the consensus estimates for the fourth quarter. 91 Wireless alone is expected to bring additional revenue ranging from $40 to $45 million and additional net income of $10 to $15 million.
Tizen will likely be a competitor for Android and we will soon see mobile phones running Tizen. To benefit even more, Baidu can use the codes of Tizen to make the biggest app store for the operating systems. Once the Tizen-installed smartphones hit the market, 91 wireless could be the only one to offer apps for the operating system. 91 Wireless already has a strong customer base and by offering Tizen apps, it can increase even more. This would contribute to more profits in 2014.
Baidu Map and its Competition
Baidu has been aggressive in the promotion of its location based services. Through its subsidiary, Nuomi, and other two companies, Mituan and Lashou, Baidu Map offers services like hotel booking, restaurant reservation, movie ticketing and traffic checking. As of the third quarter, Baidu Map managed to increase its market share from 19.1% to 26.6% as compared to the same period last year. This market share is close to the market leader AutoNavi's share of 31.3%.
AliBaba, the e-commerce giant, has a bid of $1.6 billion to buy the rest of AutoNavi. Previously, Alibaba owned 28% of AutoNavi. This poses a threat to Baidu in the near future should the deal go through. AliBaba and Baidu have been competitors in other segments of business and this aggressive strategy of gaining more market share would likely require Baidu to get in position to face the increasing competition. The edge Baidu has over AliBaba is that it has a long range of businesses to fall back on should it take a hit from increased competition in the Map segment.
It is too early to tell what sort of impact Tizen will have on the smartphones market, and what it will bring to Baidu. However, even if the operating system is able to grab a small share of the market, it will be a massive boost for Baidu and we will see a sharp increase in value. Additionally, Baidu having an app store already could be an advantage to the company. If the company plays the right strategy, it can gain huge profits from these two businesses. As for Baidu Map, I think the situation is not alarming yet. But Baidu has to get prepared for increased competition from Alibaba group. Baidu has managed to increase its market share before when AutoNavi was still present. It may manage the increased competition as well. 91 wireless and Baidu Maps have contributed well in the previous quarter and the trend should continue for the next earnings call as well. Baidu's stock gained over 79% last year. Year to date, the stock is down 6.95%. However, I expect the stock to start moving up with the earnings announcement, and I believe it will gain substantially over the next twelve months.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.