Baidu Considers China Listing, To Buy Competing Technologies

Baidu, legally a foreign invested company in China, has considered listing its stock in China or issuing CDRs (Chinese Depository Receipt), paving the way to acquiring competing search engines using stocks.

Though I don't like Baidu's prospect as a stock investment, I think it is a good move for the company. Technically speaking, Baidu's search engine is in no way superior to its competitors', including those developed by Google, Yahoo, SINA, Sohu, and Tencent. In fact Baidu is probably the worst search engine by my standard due to its heavy use of paid keywords to influence the order of search results. Baidu's popularity lies in its first mover advantage and its so-far successful marketing tactics. Over the time, however, there is no way to believe that the popularity of others' search engines won't surpass Baidu's. [Remember Yahoo was for long time the #1 search engine before the technologically superior Google emerged?]

Among the existing search engines used in China, I like the prospect of Sohu's Sogou and I think Sohu is probably the most likely take-over target by Baidu (or Google)! On the other hand, Sohu is also a foreign-invested company in China and Baidu doesn't need to list shares in China to acquire Sohu.
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In a related "news" piece, a Citigroup analyst upgraded the stock, in part on Baidu.com's solid lead on Google Inc.'s own China effort. An upgrade to "hold"? Still sounds a "sell" to me. Has he priced in the latest lawsuits Baidu is having to deal with? Time to short it on the news! (This is probably the shorting candidate I've been looking for for weeks as a hedge play against possible systemic meltdown!)

The analyst upgraded the stock to "Hold" from "Sell" and raised his price target to $105 from $70. Brueschke wrote that recent volatility, plus his calculation that the stock is priced "for perfection" over the near-term, kept him from issuing a "Buy" recommendation.

"Given the nascent state of China's search industry, we cannot conclude that Baidu.com's advantages, many of which come from its exclusive focus on search and first-mover status, powerful as they may be, are sustainable and insurmountable vs. all competitors," wrote Brueschke.