Baidu on the Downtrack? 百度在滑落？
Excitement over the first serious challenge to Baidu’s (Nasdaq: BIDU) longtime supremacy in online search seems to be getting a bit overblown, with investors jumping on just about any excuse to punish Baidu and reward fast-rising challenger Qihoo 360 (NYSE: QIHU). Some may find it a bit odd that I’m defending Baidu at this juncture, since I’ve been a regular critic of this company that has abused its dominant position in online search for years to squelch potential rivals. But all I’m really saying is that it’s far too early to write a death notice for Baidu, which still has plenty of fight left in it as it tries to defend its dominant position that has seen it control more than 70 percent of China’s lucrative online search market for years.
The latest news that has investors buzzing seems rather small in my view, coming in the form of new data that shows Baidu’s market share eroding while Qihoo gains ground. According to the latest data from a search-measuring service called CNZZ, Baidu’s share of the online search market measured by unique visitors dipped to 72.84 percent in November from 73.53 percent in October. Its share of the market measured by page views also dropped by similar amount, falling to 72.03 percent from 72.97 percent over the same period. (English article)
Meantime, Qihoo’s numbers trended in the upward direction, rising to 9.90 percent to 9.64 percent market share measured by page views; and to 10.02 percent from 9.78 percent in terms of unique visitors. While its obviously encouraging for Qihoo to see this kind of upward trending, the company’s share price reaction seems a bit overstated to me, with Qihoo shares soaring by about 10 percent to 18 month highs in Monday trade on Wall Street.
What’s more, the surge in Qihoo’s share price also sent the company’s market capitalization to $3.2 billion, passing leading online portal Sina (Nasdaq: SINA), a much more established company. Meantime, Baidu’s shares continued their downward slide, losing 0.4 percent as they re-approached a 52-week low hit in November.
So, what’s happening here? Clearly investors are doing some rebalancing, betting big money that Qihoo could eventually steal major market share and potentially even someday steal the search crown from Baidu. If that really does happen, then Qihoo’s stock should indeed have lots of upside potential. At its current market capitalization of $3.2 billion, Qihoo is worth just about one-tenth as much as Baidu, which has a market value of just over $33 billion.
Baidu founder Robin Li has been indirectly helping to fuel the investor excitement toward Qihoo by recently calling on his employees to rediscover the “wolf spirit” that once made his company a lean and hungry competitor but has been lost in recent years as it came to dominate the search space. (previous post) Qihoo’s rapid rise has been quite remarkable considering it only launched its search service over the summer. But I wouldn’t write Baidu’s death notice just yet, and suspect we’ll see this current search leader take some more aggressive steps to defend its dominant position in the months ahead.
Bottom line: Investors’ rapid bidding up of Qihoo stock on hopes of a rapid rise in its search business could be overblown, with Baidu likely to take aggressive steps to halt its market share erosion.
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