Baidu Is The Only Company Still Thriving On Its Core: Web Search

| About: Baidu, Inc. (BIDU)

There have been some recent reports indicating the situations in the Chinese and U.S. search markets. In China, the market is growing significantly, and Baidu (BIDU) continues to dominate its competitors. In the United States, there are some slight changes with the main companies-Google (GOOG), Microsoft's (MSFT) Bing, and Yahoo! (YHOO). In addition, the search market is moving more toward the mobile market, which will have interesting impacts on advertising. The situation is very positive in China, which makes Baidu look like a great investment at the moment. In the United States, the situation is not quite as good, and especially Yahoo! looks like it may be facing some trouble.

Baidu is currently trading around $110, and it has been on a downward trend since February when it hit $150. For now, there's plenty of room for the stock to grow. Its market cap is roughly $36.67 billion, and its trailing P/E is 31.46.

Prices have fallen a little for Chinese stocks, as Premier Wen Jiabao gave warnings about the Chinese economy this summer, claiming that economic difficulties could continue for some time to come. His announcement brought down a large number of stocks, including Baidu, which fell 1.3% immediately after. It hit a low in July a little after the announcement, and has rallied a bit in August, though it's still not back to where it was at the beginning of the year. I think this is the wrong thing to focus on, however, as the search market has been booming in China, and things continue to look positive for Baidu.

A mid-2012 report revealed that the search market in China has grown 26% since the first quarter of this year and 62% in the past year. It also showed that Baidu has maintained a dominant position in that market, holding 78.6% market share. Google was the second largest company, holding 15.7% market share, which is also relatively impressive, as its site only works "intermittently" in China. Microsoft's Bing, on the other hand, has no real presence in this market despite there being a Chinese version of the site. As a result, Bing was grouped in with the small "others" category in the report.

Two things are certainly great for Baidu, and those are the huge growth in the Chinese search market and its continued dominance in that market. It doesn't have a particularly strong Google presence to worry about and Google hasn't even hinted that it would be pushing itself further in China.

Although the changes are small, a recent report confirms that Google and Microsoft are continuing to get stronger in the U.S. search market while Yahoo! grows weaker. The month-to-month changes were relatively small for Google and Microsoft.

Google was up to a record 66.8%, barely up from 66.7% the month prior. This is up from 65.5% last year though, showing steady growth. Microsoft grew a little more, rising from 15.4% to 15.6% market share. This is up from 14.4% last year, showing that Microsoft also enjoys steady growth. Yahoo! moved the most, however, dropping from 13.4% in May to only 13% in June. It is down, furthermore, from 15.9% a year ago. Yahoo! is moving the fastest, and it seems like the company may just fade away soon.

Smaller competitors AOL (AOL) and Ask were both up 0.1%, but these companies remain far back in fourth and fifth position.

The report also indicated that "explicit core" searches were down 2% in June when compared to May, though July saw a bit of growth on those numbers. Explicit core searches are those in which the searcher had a particular reason for using the search engine to find something. Searches that really matter, in other words, and the US market appears quite stagnant for the time being. No search engine is making great moves against Google, and, based on these numbers, Google may be leveling off on its share of web searches.

Another thing lowering the excitement is the fact that the money advertisers put toward search ads has been falling in recent times. This is a major source of revenue for search engines, so this may be problematic to these companies. Furthermore, advertising is being directed more toward mobile searches, and this costs advertisers roughly 18% less money. In quarter one, mobile searches accounted for 14% of advertising clicks, but in quarter two, this number grew to 18%. It is not surprising that Google and Microsoft are taking more control of the market with this trend, as these companies are more connected to the mobile world. With falling advertising prices, however, one still has to be cautious about these companies when it comes to the potential of their search engines.

The U.S. search market is a little troubling at the moment, so despite maintaining great strength in the market. Baidu, on the other hand, dominates the Chinese market and should continue doing well with the rapid growth in this market. Baidu, therefore, is the only one of these four stocks that I recommend when looking at these search markets.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.