Does Have the Key to Chinese Internet Success?

Includes: BIDU, SINA, SOHU
by: Richard Shaw (NASDAQ: BIDU) is the largest Chinese domiciled search engine and may be an independent Google-like success in China, or it may be a takeover target by large global search powers such as Google (NASDAQ:GOOG), Yahoo (YHOO) or MSN (NASDAQ:MSFT).

It is ranked #7 in the world for reach according to Alexa (an Amazon (NASDAQ:AMZN) company) behind leaders such as Yahoo, MSN, Google, YouTube (also Google), MySpace, and WindowsLive.

Its dominance over the other two leading Chinese websites, (NASDAQ:SINA) and (NASDAQ:SOHU) (both also in the world’s top 25 by reach), is shown in the chart below. The chart shows daily percentage of global users in Alexa universe accessing the site over last 5+ years. []

The chart below shows Baidu and Sohu (the second strongest Chinese site) versus Google, Yahoo, and MSN over 5+ years in terms of reach. The showing is respectable. []

The next table shows the fraction of total web traffic for each site that arises from particular countries. Baidu, Sohu and Sina are essentially pure China plays.

The final chart shows key valuation characteristics of the three top Chinese and US sites. Baidu grew at a blistering 400% YOY last quarter compared to 67% for Google and only 13% for Yahoo and 6% for MSN.

Baidu has large PE, EV/Rev and EV/EBITDA ratios, but so too is its growth.

We ask whether Baidu could become another Google, or if Google, Yahoo or Microsoft might buy Baidu to solidify a Chinese position and to prevent a major competitor from gaining strength in China.

Disclosure: Author does not own any security listed in this article.

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