Google's Search Engine Clash

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

As the only internet search provider that has consistently shown promising growth in China, Baidu (NASDAQ: BIDU) is a sure hotshot in the media sector and an emerging threat to the top dogs. That is definitely a no brainer, considering its three-year period of invariable ups in terms of revenue, operating profit, and net income. In fact, in the third quarter of 2012 its revenue surged to $994.6 million, which was equivalent to a 49.7% increase from its recorded revenue in the same period of the previous year. Recent surveys revealed that the Baidu search engine is now the most preponderant website in the whole of China, accounting for about 76.0% of the overall web search market in the land. Now, considering it'ss being one of the biggest movers and shakers of the Chinese media industry, can investors deem it time to believe that Baidu is finally braced up to sweep rivals aside and dethrone Google (NASDAQ: GOOG) as the top banana?

Locking Horns with Google

Google is thus far the best-received search engine on the internet. Since its IPO in 2004, the share price of Google has exponentially grown by up to 500%. But the Chinese dominion was there to serve as its booby trap. In 2005, the Chinese government froze out Google all throughout the Chinese market, and Google China lost substantial share. Baidu, then on its downtime, stood in good stead and took the Chinese government’s “off-limits” policy against Google China as room for growth. The firm saw the potential of the immense Chinese community and tapped it in hopes of boosting its share of the market. As luck would have it, Baidu was able to generate considerably high net margin and asset turnovers. The firm dominated the market with its 83.6% share, while Google grew limp with only 11.1%. Looking at its splashy revenue and earnings growth since 2005, it is beyond question that Baidu’s control of the Chinese market equips it with the powerful potential to outdistance Google in due course.

The Rise of Qihoo 360 Technology

While Baidu’s competition with Google leaves it on the safe side, emerging rival Qihoo 360 Technology (NYSE: QIHU) appears not to leave Baidu any room for complacency. A software and web browser company currently gaining a foothold in the Chinese market, Qihoo has exhibited a consistent growth pattern since it surfaced, with a market share of 10% in the most recent quarter. Despite that, analysts perceive that its long-term growth potential remains weak and sluggish. As the company attempted to make an initial blastoff in the industry, clients saw discrepancies in its accounts and quality of user data, causing investors to blow hot and cold. It may have hurt Baidu for quite some time when Qihoo's momentary high caused its stock price to go down a tad last quarter, but it is quite noteworthy that the slight build-up in Qihoo’s stock price was more of an upshot of Google China’s withdrawal and not in any way brought by Baidu’s miscue. Now, Qihoo places third in China’s search engine market, next to Google with a market share of 15% and Baidu with a little over 70%. The software company may have hindered Baidu last quarter as it enjoyed a period of growth, but low credibility of its accounts only goes to show that the initially perceived threat was fleeting.

A Rosy Outlook for Baidu

As one of the tiger economies of Asia, China is perceived to be well on its way to being the next industry giant like the United States. And while Baidu currently holds about 80% of its search market, the firm proves to have more than enough room for future growth. Competition with Google, Qihoo, and even Yahoo! is still there, but winning the favour of Chinese policies warrants it an ROA that is way more remarkable than any of its strongest competitors. With its rapid growth and healthy cash flow since 2005, Baidu is projected to further expand and beat its competitors soundly.


JosefRayDagatan has no position in any stocks mentioned. The Motley Fool recommends Baidu and Google. 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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