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BIDU flies higher than GOOG?

|Includes: Baidu, Inc. (BIDU), GOOG
 
Bidu mainly operates in China. Its web page is in Chinese. The stock price popped to $569 on Friday that is higher than GOOG's 560. The hike of course is under the speculation the GOOG will retreat from China due to the argument with the Chinese government on censorship. Analysts then projects Bidu will take over GOOG's 30% market share and extrapolate what BIDU's price should be.

There are two questions, one is less uncertain than the other. GOOG is very likely withdraw from China at the end of April. One evidence is that GOOG posted highly sensitive photos on their website. Such action doesn't indicate the negotiation going well. Also, the cross bottom line action will expedite Chinese forcing GOOG's withdraw. This question is less uncertain.

The other question is how much BIDU can fill GOOG's hole? Among GOOG's 30% Chinese market share, it is questionable that BIDU's Chinese platform can take them over completely. Don't forget, there are other search engines in China, like Sina's iAsk that incensed to grab market shares. Also, monopoly doesn't work very well as new search engine company will come out to fight for the pie. So 30% growth projection is overestimated and therefore it is overpriced.

Another side note, most Internet foreign companies' fate such as Yahoo!, EBay, Google, doesn't look as sweet as auto companies like Ford and GM. This is mostly because of an unseen force from the government. Internet isn't playing a key role in China's core development strategy. Besides, it is not capital intensive investment compared to auto industry. When the Chinese parties gain enough experience and accumulate enough brain power, capital shift to the second. It is true that most foreign companies don't know much local policies and culture. But also there is huge advantage from the government to favor local companies. China is a big market and is worth second look.


Disclosure: No positions at BIDU and GOOG