Rumors of Baidu's Death are Greatly Exaggerated
Pam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This week, shares of Baidu Inc. (NASDAQ: BIDU) dipped twice, 5% on Tuesday, August 21, 2012 and another 5.7% yesterday, August 23rd. The stock reached an intra-day low yesterday of $110.13, nearly 18% below last Friday's close. What caused these two down days? A writer for Forbes wrote an article on Tuesday saying that web browser provider Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) was “getting some traction with a new search engine.” This was followed by a second article on Thursday repeating the same mantra. Not surprisingly, others piled on and the stock fell, despite only one analyst downgrade. In this article, I will investigate these claims and determine whether Qihoo really has Baidu on the ropes or not.
Who is Qihoo?
Qihoo is a browser company in China. According to web information company, Alexa.com, based on the traffic to its website, Qihoo is now ranked #984 in China and #9615 in the world. As an aside, a little over 12 hours ago, their rankings were #1084 and #9983, respectively. Amazing what press can do for you! For comparison, let's look at the ranks of other Chinese internet companies with familiar names, Baidu, SINA Corp. (NASDAQ: SINA) and Sohu.com Inc. (NASDAQ: SOHU). Since the higher the rank number, the lower the traffic is to the site, I divided all of Alexa's ranks into 1, inverting them, so for example, Qihoo's rating in China is 1/984 or 0.0010. This allowed me to compare the four companies graphically.
As you can see, Qihoo and Sina's rankings are so low relative to Sohu and Baidu, that they barely rise above 0 on a linear graph. That's why I also included their numerical values so you could see them. Clearly, Qihoo is no threat to the leaders, Sohu.com and Baidu.
So What Was All the Excitement About?
This week, Qihoo announced it was dropping Google Inc. as its default search engine and would start using its own instead. Users will still be able to use Google if they want. This precipitated the drop in Baidu's shares. So what? How does that affect Baidu? Good question.
According to Alexa, 7 days ago, 0.0278% of internet users worldwide accessed Qihoo's website (their daily reach). Yesterday, it was 0.062%, an increase of 123%. While this increase on a percentage basis looks impressive, Qihoo's actual daily reach is still only 0.062%, probably all in China. Why the abrupt increase? Could be curiosity about their new search engine. If so, and if it is inferior to Google's, traffic will drop over the next few weeks.
By contrast, Baidu's reach 7 days ago was 11.81% and 11.82% yesterday for a growth rate of 0.08%. On that basis it looks like Qihoo is “threatening” Baidu's dominance. But, Baidu's daily reach is 190 times greater than Qihoo's. Looking at the last three months instead, Qihoo percentage growth again looks impressive, but the actual number of eyeballs gained isn't vs. Baidu's gain. During the last 3 months, Baidu gained 5.5 times more new users than Qihoo.
With Qihoo's Daily Reach Growth Rate, Is Baidu in Trouble?
While Qihoo's search engine is popular, it would have to be the best thing since the invention of the chopstick to allow Qihoo to overtake Baidu on that basis alone. It is certainly possible. In the late 90's, Yahoo! Inc. (NASDAQ: YHOO) dominated search. It was their business to lose and lose it they did to Google. But, Baidu is not ignoring Qihoo. They are considering legal action based on how Qihoo's search engine works.
Bottom Line
Qihoo wants to take out Baidu, true. But, wanting something doesn't make it happen or else I'd have 100 billion dollars (should be enough). If it's going to happen, it won't happen next week or even next year. It will take time. Meanwhile, Baidu is not standing still. They are fighting and will continue to innovate and expand their reach into mobile devices. So, enjoy their current drop to reduce your cost basis, but don't panic.
Acknowledgment
Many thanks to fellow Fool jasonb75 for the link to Alexa.com!
p366 owns shares of Baidu. The Motley Fool owns shares of Baidu. Motley Fool newsletter services recommend Baidu, SINA , Sohu.com, and Yahoo!. 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.If you have questions about this post or the Fool’s blog network, click here for information.
