Baidu: 'China's Google' Is Not Done Yet

Aug. 26, 2019 12:38 AM ETBaidu, Inc. (BIDU)TCEHY22 Comments

Summary

  • Baidu's share price has been hammered over the last 12 months, declining from $234/share to around $104/share today.
  • Its search engine business has a strong moat, and the company's market share has remained relatively constant over a long period of time.
  • Investments in AI and transition to a managed health care portal, combined with macro concerns, have served to temporarily depress profitability but should only be short term.
  • Tencent's WeChat looms as a longer-term concern.

Baidu (NASDAQ:BIDU) has had a torrid time of late. The share price has collapsed over the last 12 months, from a high of $234/share to just over $100/share, due to a myriad of concerns. Baidu remains a solid long-term play, and while there are risks, is well-positioned to provide solid investor returns.

Baidu is still a moaty business

There is very good reason why Baidu is variously described as the Google (GOOGL) of China. It has built has a robust network effect business around search, having been in the search business for the better part of 2 decades. With Google having effectively exited the Chinese search market in 2010, this has largely been Baidu’s for the taking, with the company now having search-based market share of close to 75% in the Chinese market, which has generally been fairly consistent.

Search Engine Market Share in China

Source: MarketingToChina.com

Baidu has more the 400 million mobile search users in its ecosystem, and benefits from a network effect and a rich data stream that comes from the hundreds of millions of search queries that these users do regularly which helps to improve the prioritization of search results, which Baidu can in turn leverage to provide a more personalized, relevant experience to users.

It would be highly unlikely, if at all possible, for any new provider to the market to be able to replicate the years of search data, database of users and merchant aggregation that Baidu has been able to amass over the years. Even if all this could be done in a reasonable period of time, the development and refinement of search algorithms to collate all of these results is no mean feat. The one caveat to this would be the re-entry into the Chinese market in a more meaningful way of an experienced player like Google (

This article was written by

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I am an investor who is focused on disruptive businesses that are transforming industries lead by visionary leaders with substantial skin in the game. I have spent nearly 20 years in a formal capacity in various investment banking and corporate advisory roles, having attained my MBA with a concentration in finance. This led me toward a path in Venture Capital and working with entrepreneurs building new technology businesses, and I have had the opportunity to not only invest in a number of amazing privately held businesses, but also play a meaningful role in growing several of these early stage enterprises as well. I am now focused on applying my lens of private market disruption and leveraging secular tail winds to the public markets. This was a journey which I started with my public Project $1M portfolio series and which I have deepened with my marketplace service, Sustainable Growth

Disclosure: I am/we are long BIDU, TCEHY, GOOG. 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.

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