) is well-known as the
) of China given its 73% share of combined mobile and PC search
traffic (according to research firm Analysys International). So
why are prices declining?
While Baidu most certainly gained from Google's exit from
China, several home-grown players are now proliferating, the most
significant of which is currently
). Qihoo entered the search market by leveraging its security
user base of more than 450 million.
The company was already offering its Internet security
products for free and generating revenue through advertisements.
Its search engine So.com followed the same model and so was
immediately successful, pushing it to the number two spot. Qihoo
is particularly strong on the mobile platform, where it has a
number of popular products.
The merger between
) Sogu and Tencent's Soso search engines also makes for a
stronger third player in the search market.
Baidu is the market leader by far and the company is now
focusing on the mobile segment, because this area is likely to
see much stronger growth. The company has built products
targeting three specific areas in mobile search, app distribution
and location-based services. Management stated that at the end of
the last-reported quarter, it had leadership positions in all
On the flip side, the company saw SG&A expenses increase
107% in 2013, driven primarily by the promotion of its mobile
products. And investment for growth does not end here -- it is
expected to remain particularly strong through 2014. Although
sales will increase this year, management intends to plough back
all additional profits into promotion in order to capture further
market share in mobile.
Another hit to profits is the increased headcount, which was
up by 5,300 in the last quarter. Acquisitions accounted for 4,000
of these people with most of the rest being recruitments for
Baidu's own R&D operations.
The Zacks Consensus Estimate for the current quarter dropped
15 cents following the earnings announcement with the estimate
for the following quarter dropping 40 cents. The estimates for
2014 and 2015 are down $1.17 and 91 cents, respectively. This
drove the Zacks Rank to #5 (Strong Sell). However, note that even
after the revision, earnings for 2015 are expected to be up 50%
from 2014 on an expected revenue growth rate of 39%, which is no
Therefore, it is apparent that the market is pricing in the
increased competition and Baidu's proposed investments. We would
watch the price for an inflection point, buying on the
BAIDU INC (BIDU): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
QIHOO 360 TECH (QIHU): Free Stock Analysis
SOHU.COM INC (SOHU): Free Stock Analysis
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