Baidu (BIDU) continues to hold its substantial monopoly in China, the country Google (GOOG) chose to pull out of two years ago. And what an important monopoly it is when you consider the more than 500 million internet users that live in that country. On top of that, it has been described as nothing less than a "torch-bearer when it comes to the global stock market", making it a company to watch out for and keep close tabs on.
Baidu may not be what you would call original, but it does not need to be to take pride of place in the Chinese market. It stands to reason that a company launched after Google will of course have several products that are similar, but this has by no means detracted from its power. In fact, Baidu beats Google by a whopping 77% to 18% in terms of market share in China, and there are several different reasons for this that may make things insurmountable for a company to overtake Baidu's prowess in its home country.
For example, there are features that Baidu has that Google lacks such as special search features aimed at senior citizens. There have been major differences in the approaches taken by each of these giants over the years and each has clearly diverged in terms of its tactics, but overall the service offered by Baidu seems far more accessible and user friendly. This bodes well for the company's future. As more people become aware of the advantages of Baidu over Google, the system will grow in popularity, and in the long run it will continue to grow across China, and perhaps even in the rest of the world, making it one of the safer options in the market.
The chance Baidu's popularity decreasing in China is extremely low, meaning that even if the search engine does not take off all over the world, investors should have nothing to fear. Not to mention the huge portion of China that has yet to start using the Internet at all. Although Baidu already has a huge magnitude of users, only about an estimated 40% of China is actually online meaning that there is an opportunity for enormous future growth.
Despite this divergence in paths, the similarities that Google and Baidu share bode well for stock holders. In many cases, Baidu has been compared to an early version of Google, which means that the enormous growth Google experienced can and should be replicated in the future development of Baidu.
Another aspect that makes stocks from Baidu seem particularly promising is the company's intention of hopefully working together in the future with giants such as Apple (AAPL), although many believe this future coalition to be nothing more than a rumor. The speculated agreement between Baidu and Apple, should they end up working together, is the understanding that the default search engine homepage on iPhones sold in China will be Baidu. Clearly there are benefits for both sides, but I believe that Baidu will benefit more from this partnership than what it will have to give up.
Baidu is not the only search engine that has been experiencing market growth in China. Sohu.com (SOHU), for example, has also experienced a surge in growth over short periods of time. Sohu, although a growing search engine, is still a relatively powerless entity in China as compared to its competitors.
Another Baidu competitor, SINA (SINA) has seen possibly the most turbulent rise of all the Chinese tech companies. This time last year, its stock price was near $120 and it has fallen to its current price of around $64 per share. The fall was due to a jolt of new buyers, who then realized that their optimism was set a bit too high. SINA failed to have the success that Baidu has had and buyers are worried that another huge fall is set to hit the company's price.
Changyou.com Limited (CYOU), has also failed to come close to achieving the feats seen recently by Baidu. Although its price never reached the level of SINA, Changyou's price has also fallen by nearly 50% from its 2011 high. Changyou, however, is partnered with SOHU as its online gaming unit and the two companies put together represent quite a force in the industry.
Recently, Rovio Entertainment, the makers of the insanely popular "Angry Birds" game have been in talks with SOHU (and Changyou.com by default) and Baidu as to how to reach more players in China. If Changyou can beat Baidu in the task to increase participation, it can improve its already large standing among Chinese gaming giants. This would be bad news for Baidu, as it presents a greater front to compete with.
Keeping all of the above mentioned factors in mind, the fact that Google has decided to renew its presence in China should not come as a threat. Even with both giants Baidu and Google present, there will still be room for the smaller search engines and online gaming websites to find success, and Baidu's stocks will not be significantly affected by the change at all. The understanding that Google still comes second to Baidu will remain in the minds of Chinese users for the time being. Google's re-entering into China should be closely watched for Baidu buyers, but is yet to be a cause for concern.
The one slight concern raised regarding Baidu is the fact that the economic growth in China is expected to experience negative fluctuations over this year. Yet, considering the fact that there is still so much room for growth where Baidu is concerned, this is unlikely to manifest as a serious problem. With so many users still coming into the internet age in China, Baidu stands to be a titan for many years to come.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.