Apple (AAPL) is recently reported as tagging Baidu (BIDU) as its default search engine on a number of devices, including the ever popular iPad and iPhone. With Apple just receiving regulatory clearance in China for its iPad and with rumors of the new iPhone being made available through the world's largest wireless provider, China Mobile, Baidu stands to benefit tremendously.
Baidu is the owner of the most widely used search engine in China. With 80% Chinese market share, it dwarfs the share of its closest competitor, Google (GOOG), which only has 17% share. The deal with Apple will only increase that share, as more devices capable of accessing the internet are made available to the burgeoning Chinese middle class. As of January 2012, there were more than 500 million internet users in China and 356 million had used a mobile device to go online, up 17.5% from a year earlier. That number should continue to grow year over year as more devices hit the market. Baidu is a "growth stock" and since mobile computing is increasingly becoming the avenue for online search, the contract with Apple will reinforce this story.
Consequently, Baidu's recent history of very choppy trading may soon come to a close. The stock had traded within a descending channel for much of the past six months, until it broke out of a range last week, closing above $140 and sustaining it for four consecutive trading sessions, each day making new highs (Thursday - $144.96; Friday - $145.00l Monday -$150.97, Tuesday - $154.15). The recent trading is the first multi-day close above $140 since last November. With Baidu trading above its 10-, 20-, and 50-day moving averages and doing so on relatively higher volume, the stock is in poised to take out its 52-week high of $164.36.
While Google stands to lose share with this recent news, this article is in no way an indictment against the search engine behemoth. In fact, for those looking for more of a "fundamental" story, Google is the better bet since it trades at a much lower price-to-earnings ratio (22 vs 50), earns more money (24 billion vs. 1 billion est) and has a much larger cash hoard (43.3 billion). Google has also been trading rather strong lately, filling its horrific post January earnings gap down, and now trading just 3% under its 52-week highs. For those apprehensive of China and Baidu's volatile trading, Google does pose a nice, perhaps safer, alternative.
Apple has a number of derivative plays from chip makers to glass manufacturers. You can add Baidu to that mix as its platform will see significant increases in traffic in 2012.