Baidu Dominates the Chinese Online Web Service

Baidu – A Titan from China

Baidu is not typically a name that many Westerners are familiar with. In fact, this search engine giant is Chinese in origin, and it is the search leader in China by a long margin. All too often, industry pundits compare Baidu to Google, but there are very few comparisons other than the fact that they are both involved in online search. In terms of market share, Baidu (BIDU) completely dominates the virtual Chinese landscape. In fact, when comparisons are made between Google and Baidu, it’s a no-brainer. Google’s lead over rivals Yahoo and Microsoft is minimal compared to the market share that Baidu has in China. While the numbers change from year to year, and from quarter to quarter there is no doubt that Baidu is a dominant force in the Chinese market.

Quarterly revenues throughout 2015 were substantial, with figures of $3 billion + recorded in Q2 2015, and $2.89 billion recorded in Q3 2015 as cases in point. These trends are set to continue moving forward, as China continues to accommodate its burgeoning middle class. In fact, the Q3 2015 figures marked a 36% increase from the Q3 2014 figures, and it is strong growth like this which is drawing investors to this Chinese search engine giant. While the absolute percentage that Baidu has in the Chinese market is declining, the overall numbers of users it is able to attract is increasing. Already, Baidu features an impressive 70% market share across China, and as the world’s second-largest economy, with the world’s largest population by far, this is an impressive statistic.

 

The History of Baidu

Baidu Incorporated (BIDU) was established on 18 January 2000. This Internet services company has its headquarters at the Baidu University campus in Beijing. Among others, the company features primarily as a Chinese language-service for search engine functionality, and it also provides multimedia content such as audio, images, videos etc. There are a wide range of community services, numbering 57, which are searchable and keyword-driven. The founders of the company – Eric Xu and Robin Li – are Chinese nationals, and they studied abroad before returning to China to establish the company.

Dr._Eric_Xu
 

Such is the popularity of this search engine that it ranks in the Top 5 of the Alexa.com rankings. The degree of openness that Baidu operates under is subject to debate. It is clear that Google and other Western search engines such as Yahoo and Microsoft offer a greater amount of freedom in terms of what they can feature on site and how users can access the Internet. China is still in the process of granting greater access to users on Internet searches. There is a history however of severe censorship with the search engine, which has been revealed in a series of leaked documents from censorship departments and internal monitoring services.

 

Robin-Li

Baidu’s name is a derivation from the classic poem by Xin Qiji. Among others, the following services are offered by this search engine giant:

  • Baidu Map
  • Baidu News
  • Baidu Space
  • Baidu Games
  • Baidu Knows
  • Baidu Browser
  • Baidu Anti-Virus
  • Baidu Around You
  • Baidu Legal Search
  • Baidu Encyclopedia
  • MP3 Search by Baidu
  • Baidu Cloud/Baidu Yun

Baidu Stock (BIDU NASDAQ)

Baidu Inc is listed on the NASDAQ where it trades under the ticker BIDU. In December 2015 the stock was trading at $204 per share, and it has a 52-week trading range of $100 on the low end and $237.43 on the high end. The company’s market capitalisation is $70.53 billion, with a price/earnings ratio of 38.48 and an earnings per share of 5.30 (December 9, 2015). The 1-year target estimate price for the stock is $212.17 and the next earnings date will be between February 9th and 15th, 2016. Analysts have given the stock a mean recommendation of 2.1 for the week ending December 11, 2015. On a scale of 1.0 (strong buy) to 5.0 (a sell), Baidu is listed as a buy.

However, the upgrades and downgrades history of the stock has been a mixed bag. Between 2014 and 2015, there have been an equal number of upgrade and downgrade actions on the stock, owing to its shrinking market share in China and the Chinese equities meltdown towards Q3 2015. Research firms such as Jefferies have moved from a downgrade in May 2015 to an upgrade in August 2015, while Credit Agricole, Brean Capital and JP Morgan moved to downgrade the stock midway through 2015. More investors are choosing to hold or buy the stock compared to those who view it as a sell or underperform option (Thompson/First Call).

In terms of projections for 2016, revenue estimates for March 2016 are $16.75 billion and for 2016 December $82.71 billion. Sales growth for March 2016 is projected at 31.70% and for 2016 December 25.70%. The stock has endured a difficult current quarter with earnings of -31.60%, compared to the industry average of -21.30%. The S&P 500 index by contrast has grown by 2.60% during the current quarter, and the sector has grown by 7,483%. For this year (2015), BIDU has had a year-to-date return of -13.80%, while the industry has enjoyed returns of 20.10% and sector returns of 7.50%. The S&P 500 index has provided returns of -0.80% for the year. All of these figures are expected to be reversed in 2016, with strong earnings for BIDU at 30.30%, 7.50% for the S&P 500 index and 59.50% for the industry. Of course, these facts and figures are subject to change, based on geopolitical events, policies adopted by the European Central Bank, the Fed, the Bank of England and the Bank of Japan, et al.

In terms of quarterly earnings forecasts for BAIDU, the NASDAQ anticipates the following:

  • December 2015 – 78 EPS
  • March 2016 – 1.06 EPS
  • June 2016 – 59 EPS
  • September 2016 – 17 EPS
  • December 2016 – 1 EPS

According to the NASDAQ, the yearly earnings forecasts for BAIDU are as follows:

  • December 2015 – 89 EPS
  • December 2016 – 6.72 EPS
  • December 2017 – 22.08 EPS
  • December 2018 – 14.95 EPS

Figures for Chinese Internet Growth (June 2015)

Chinese-Internet-Growth

  • The number of Internet users in China continues to grow at an alarming rate, with June 2015 figures showing a market penetration of 48.8%, and 667.6 9 million users online
  • Mobile search users in June 2015 numbered 454 million while Chinese search engine users hit 536 million
  • Baidu has a market penetration rate of 92.1% while rivals Sogou weighed in at second place with 45.8%, and 360 Search at 38.6%. Incidentally, Google weighed in with an overall penetration rate of 27.4% and a mobile penetration rate of 4.2%

Other search engine providers in China that compete with Baidu include Shenma, Easou, and Youdao. The most impressive characteristic of Baidu is its high degree of user loyalty. It has successfully cultivated a brand that users can identify with and repeat business is the order of the day. In terms of prioritized online search engines, Baidu weighs in with an 86.7% rating while 360 Search features in second place with 8.8%. The vast majority of Chinese net-citizens utilizing Baidu and other search engines come from metropolitan areas and first-tier cities. This is on an even keel with third tier cities and rural areas, while the smallest percentage of users comes from second-tier cities. As one might expect from Chinese demographic data, the usage of search engines (absolute number) such as Baidu and Youdao is directly correlated with the degree of education that a user has.