Stock of the Day
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Baidu (BIDU)
Say Hello to Baidu: Chinese Search Engine Recently Downgraded Despite Strong Q3 Earnings
One of the most popular websites on the entire internet is virtually unknown to North Americans, though savvy investors may want to take notice. Internet giant Baidu.com, China's largest search engine by revenue, experienced an astounding surge in third quarter profits (released at the end of October), up over 100% from the year-ago quarter, and shares have been up over 200% in the past 6 months. Today, Baidu.com CEO Robert Li expressed an interest in listing shares of his company in Hong Kong, which would raise public awareness of the website and possibly garner capital for expansion into new markets. But investors should be seriously questioning if Baidu can handle its own explosive growth and whether shareholders are buying into the sort of hype we saw before the burst of the tech bubble at the turn of the millennium.
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Shares have eased off from highs of over $420 only a few days ago, having taken a hit after a downgrade by RBC Capital Markets, though they did reassure investors that Baidu's long-term fundamental outlook is unchanged.
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However, even after this downgrade, media interest in the Chinese tech sector is still palpable after the extraordinarily successful IPO of Alibaba.com yesterday. Industry analysts say that the Hong Kong Stock Exchange offering of Alibaba.com, an e-commerce site that facilitates business-to-business exporting for international buyers and Chinese sellers, is probably what prompted Mr. Li to make a statement expressing a desire to list Baidu in Hong Kong.
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Baidu is reportedly seeking to acquire Chinese internet companies with a focus on consumer-to-consumer services. Though it owns a healthy estimated 75% of the Chinese-language search engine market share, Baidu hopes that aggressive expansion will keep it a few steps ahead of its second biggest rival, Google (GOOG: Charts, News, Offers), which seeks to extend its internet dominance to all corners of the globe.
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Last week, Google unveiled its newest domain "G.cn," which is the shortest domain name in China. The new domain redirects users to the Chinese-language version of the Google homepage, which could potentially steal millions of current Baidu users seeking to save a few keystrokes in their day-to-day internet queries.
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With all of the recent attention paid to the successes of Baidu and Alibaba, some opinionated analysts are afraid that Wall Street and international investors are wildly overvaluing Baidu and its peers in the Chinese tech sector. However, for now performance seems to be reasonably strong, and few seem to be panicked. Of course, only time will tell if these Chinese techs can keep surpassing expectations.
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Profile |
Click here to read a detailed profile of Baidu.
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