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Google Inc. (GOOG) and Baidu.com Inc. (BIDU) once lead the internet search world together in China. However, since the espionage accusations by Google in 2010, Google's success in China has stalled, but Baidu has continued to flourish. The company's stock has been on a steady incline dating back to 2008, and the trend looks to continue despite the current fears of a slowing Chinese economy.

Baidu currently accounts for more than 78% of China's search engine market by total revenue, while Google only possesses 15.7%. I personally don't see Baidu's earnings slowing anytime soon either because I see no correlation between a slowing economy and total time a person uses a computer or the internet daily. The internet has become a staple of civilization in this day and age. A slowing economy may affect sales, but not internet use, especially when only about a third of China's population utilizes the internet.

As the established leader in China's internet search world, Baidu is still expanding in a market, that unlike the United States, isn't well established yet. The chart below shows how amazingly only 38.3% of China's population was online in 2011, and they expect those numbers to continue to grow rapidly to over 50% by 2016. North America on the other hand 78.2% of it's population online in 2011.

(click to enlarge)

Baidu's earnings have been terrific as of late and there are no signs that this trend will end anytime soon. Baidu's Q2 revenue grew 60% from the previous year to $858.8 million. Total online advertisers is also growing rapidly, as the company reported it had over 352,000 online advertisers in the second quarter, up 9.7% from the previous quarter. Customer growth also expanded 18.1% to 352,000 users during the quarter. Baidu also made a deal with Microsoft Corporation (MSFT) during this quarter to utilize Microsoft's search engine Bing to help power English search queries. This shows that Baidu might be searching for additional revenue growth in foreign markets besides China and Asia.

Although I am pessimistic towards foreign companies right now, I consider Baidu a buy at these levels. It currently sits about $50 below its 52-week high of $165.89, and I see the positive Q2 earnings pushing the share price to at least $125 per share. My feelings are not mutual on other Chinese internet stocks though such as SINA Corporation (SINA), Sohu.com Inc. (SOHU), Renren Inc. (RENN), and Youku Inc (YOKU). Baidu is by far the best in breed when it comes to Chinese internet stocks so stick with it.

Source: Baidu: A Foreign Opportunity