Analysts and investors have recently voiced concerns over Google’s competitive threat to Baidu’s search share in China — Baidu commands about 60% versus Google’s 30%.
But today those in Baidu’s camp received some positive news when UBS analyst Wenlin Li upgraded the BIDU shares to “Neutral” from “Sell.” Here are the highlights:
- Strong Q209 results (revenue was about $161 million, beating the consensus estimate of $158 million) and better-than-expected guidance for Q309.
- Baidu’s new keyword bidding system Phoenix Nest is now seen as “beneficial rather than detrimental” to revenue growth given evidence that integration challenges will likely not be as bad as expected.
- Continued upside to the search market in China (total revenue is currently only 5.4% of total US revenue).
As a result, Li believes the BIDU shares could increase to as much as $380/share in the next twelve months, up from the previous target of $150/share.
Of course, even though Google’s share of the Chinese search market decreased to 29.1% in Q2 ’09 from over 30% in Q1 ’09, it has still grown significantly from its low-single-digits share just six years ago. And the company continues to invest in local sales forces — important for Chinese P4P advertising companies, which still depend to a large degree on human salespeople versus automatic technology.
So although UBS is getting more positive on the BIDU shares, the battle for Chinese search dominance continues.
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