“Baidu today wants to be the Google of Asia, especially with respect to ads placement," says Paul Kedrosky, Consulting Strategist at Ten Asset Management.
Yet many still consider Baidu a single-country play, whose fortunes rise and fall with the Chinese economy.
“Baidu today is leveraged to a single economy for the majority of its revenue, so could face more concentrated regulatory and market risks than globally diversified competitors,” says Jordan Monahan of Global Investment Research at Goldman Sachs.
Baidu, which began as an Internet start-up about ten years ago by a U.S.-educated Chinese computer engineer, now commands 60% of the paid search market share in China, according to data from Analysys. By contrast, Google is a distant distant second in China, holding about 30%.
Baidu's dominance of China is expected to continue as more Chinese go on the Internet.
“In China if you search in Chinese, Baidu is the place to go,” says Paul Keung, who covers Baidu at Oppenheimer Equity Research.
Mainly for that reason, Baidu's stock has soared from its initial IPO price of $27 a share to nearly $400 now. And while many Internet companies got hammered during the global economic meltdown during the past year, Baidu is up a whopping 91%.
Analysts from Goldman Sachs are looking at Baidu’s revenue growth rate at around 30% to 40% from 2010 to 2013, verses 10%-12% for Google.
“Only 26% of China’s population is online,” says James Mitchell, Equity Research Managing Director at Goldman Sachs, “Baidu remains our favorite stock for its potential in search traffic growth.”
Even Google CEO Eric Schmidt acknowledges the tremendous growth potential in China. Schmidt said at a recent industry event that he expects the Web to have significantly more content in Chinese by 2014.
“The right question is whether Baidu can build a Chinese language beachhead that Google can't adequately assail,” Kedrosky says.
For now, Baidu is known as "China's Google Killer." And the potential growth is still huge. According to IT consulting firm ComScore, home and work Internet user population in China has grown three-fold the past year alone.
As of now, only 1% of China’s businesses have been advertising through Baidu. A latest Goldman report carried it even further: “We do not see where else (Chinese) search advertisers could spend their budgets other than Baidu, given Baidu’s industry dominance.”
Baidu’s success owes largely to its ability to leverage local knowledge and therefore delivers more desirable search results.
“Compared with Google, Baidu is more in tune with the Chinese culture,” says Baidu’s spokesperson Victor Tseng.
He uses an example of a search query “she” (a famous girl band in Taiwan). Instead of results irrelevant to the Chinese as Google and many other search engines would churn out, Baidu’s top results are the S.H.E. Taiwanese girl band in Chinese together with their downloadable music. Therefore when it comes to searching in Chinese, the Chinese search with Baidu.