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28
Mar
2011

3 reasons to buy Baidu stock (BIDU) even at record levels

Late last week, Chinese search engine company Baidu.com Inc. (NASDAQ:BIDU) overtook Web conglomerate Tencent Holdings Ltd. (HKG:0700) as China’s largest Internet company. Baidu’s market value surged to $46.06 billion compared to Tencent’s $44.6 billion, according to Business China. A lot of investors may be questioning just how big Baidu can get, but there are still compelling reasons to consider adding the stock to your portfolio. Here are three of them:

1) A monopoly on search. After Google Inc. (NASDAQ:GOOG) pulled out of China last March, Baidu’s share of the Chinese search market has steadily risen to 83.6 percent (per ResonanceChina). That’s led to a big bulge in Baidu’s wallet. During Q4 of 2010, Baidu’s revenue was up 94 percent year-on-year to RMB 2.45 billion with most of that cash coming from online advertising services.

2) A new way to browse. Baidu looks to be aggressively expanding its offerings. Now that it dominates search in China, the company’s announced that it’s hard at work on a Web browser that will compete head-to-head with Google Chrome and Microsoft Corporation’s (NASDAQ:MSFT) Internet Explorer. Baidu should be able to leverage its high-visibility search results pages as a platform to advertise the browser and encourage surfers to download it; much like Google did with its Chrome browser. A browser that’s optimized for the Chinese language and surfing habits could make consumers more comfortable (or even dependent) on Baidu’s services.

3) Mobile OS. Rumors surfaced last week that Baidu’s also working on its own “light operating system” for mobile devices to be launched in three to five years. It’ll be interesting to see if Baidu opts for an open-source OS that would compete directly with Google’s Android OS, or if they elect for a closed OS along the lines of Apple’s (NASDAQ:AAPL) iOS, which runs the iPhone and iPod Touch. Either approach could open up valuable revenue streams for Baidu in the mobile app realm.

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