The Q3 financial report released by Baidu on October 30 showe that the revenue and net profit are 13.52 billion and 3.876 billion respectively, year-on-year growth of 51.8% and 27.2% respectively. Affected by the news, Baidu’s share price hit a record high of $237.55, its market value reached $83 billion (note: if it was not split by 10:1 in May 2010, Baidu’s share price has stood on $2300)
Why capital market favors Baidu
From April 2013 to now, Baidu”s share price rose above $85 from $85 a line, in the 18 months of trading, it is closed up for 12 months. Especially recent two months, In adverse environment of turmoil capital market, Ali’s disturbance of China concept stock ecology, Baidu’s performance has been pretty strong.
Compare Baidu and Google’s share prices with their own closing price in the fourth week of March this year as 100% (that is, since the week before Google split shares) . We can see Baidu’s share price rose 57% in this period of time, while Google’s share price fell by 2%.
First is the market position of “dominance”.
In the vibrant Internet field of the world’s second largest economy, holding a rigid demand market share is about 80%, brand penetration is up over 95%. Whether for the PC and mobile business, market share is increasingly concentrating to Baidu, Qihoo 360 and Google. According to May’s report in the first quadrant, Baidu search kept ahead with a 83.6% of market share; for mobile terminal, May’s report in the first quadrant shows that Baidu’s share is79.3%.
The 2014 Chinese Internet Users’ Search Behavior Research Report released by CNNIC two weeks ago shows: up to June 2014, Baidu brand penetration is 95.8%, Tencent Soso/Sogou is 36.8%, Google search is 33.1%, Netease Youdao search is 17.9%, 360 search is 15.1%.
The reason why to appear such market pattern, is because the thresholds of search (especially the mobile search) in technology, patents, content, marketing and other aspects are already high. It is very difficult not to figure out for the weaker, let alone overtake at the corner.
Second is the fast and steady performance growth.
Although affected by seasonal factors, Baidu’s revenue and net income has maintained growth in general. The net profit rose by 29.6% in Q3 of 2014 .
Last is “onservative” valuation.
Baidu’s advertising revenue growth (YoY) is much higher than that of Google, above 50% in consecutive quarters until Q3 of 2014 .
At present, Google, Baidu’s price-earnings ratio are 30 and 40 times respectively. Baidu’s market value is less than a quarter of that of Google. The difference of price-earnings ratio mainly reflects the inherent advantage of “small-cap stock”. But Baidu’s revenue growth is more than 2 times of that of Google, which is not fully reflected.