The Next Google or Better?

Ben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Baidu ) provides internet search services that enable users to find relevant information online with the help of web pages, news, images, documents and multimedia. They also offer a range of online marketing services to small and medium sized enterprises as well as subsidiaries of multinational corporations.

Killing the Competition

Baidu has often times been compared to Google ), but of late they have the valuations and growth potential to possibly outperform anything Google has ever achieved. The best thing Baidu has going for them is that they are located in China and are outside the grasps of Google, not only that but they are a leader of web services in China out dueling such companies like SINA ) and Sohu.com ).

  BIDU SINA SOHU
Market Cap 35.43B 3.47B 1.82B
EPS (ttm) 4.42 0.57 2.09
P/E (ttm) 22.93 92.08 22.90
PEG (5 yr exp) .60 24.60 2.03

Baidu has the largest market cap at $35.43 billion (Google is number one at $242.45 billion), the highest earnings per share and a respectable P/E at 22.93, but what makes this stock better than its competitors is their PEG at .60. This indicates the stock is currently being undervalued compared to projected growth; This table also shows that its competitors are overvalued and don’t deserve such a high P/E.

Don’t be fooled by past performances

Baidu is currently priced at around $102 per share and over the past year the stock has fallen about 14% from a high of $154.

 

This chart doesn’t exactly inspire confidence but in order to truly see Baidu’s potential you have to look past what the stock has done of late and more at China’s economy and the simple fact that only 1/3 of China has internet access. According to Baidu CEO Robin Li “Baidu answers more search queries in China than any other search engine in any other market, including Google in the US.”  Also according to Li of those people with Internet access about 99% of them use Baidu as their main search engine and consequently he see’s great room for growth.

Of course these statements come from the CEO and can definitely have some bias, but the fact remains that Google tried to enter the Chinese market and had to exit in 2011 basically giving Baidu total control over China. With a profit margin at around 48% and an operating margin of 51.36% they have shown to be very profitable and following Google’s exit Baidu has increased revenue each year and in 2011 reported revenue of 2.3B almost triple what it was in 2009. On top of that they’re an industry leader in return on equity at 51% which shows how efficient management has been.

My Take

The fundamentals are there and the positive headlines are there so now it’s only a matter of time before the stock starts performing up to its potential. If Baidu can withstand its competitors and continue its rapid growth I see no reason why they can’t be the industry standard moving forward.


Fool Blogger Ben Kovalick does not have a position in any of the companies mentioned in this blog. The Motley Fool recommends Baidu, Google, SINA , and Sohu.com. The Motley Fool owns shares of Baidu and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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