Baidu, Inc. (NASDAQ: BIDU) is proving that it was far too oversold during the September market tank.  The company is surging after earnings and it needs to be noted that the ADR is still well under its 52-week that was put in above $160 in July.  What is happening is that Baidu is proving it may still be better than Apple Inc. (NASDAQ: AAPL) for upside and better than Google Inc. (NASDAQ: GOOG) as well.

After Baidu’s earnings report, it is not that Baidu is the best search engine but that westerners will think it is the only search engine in China.  The results are being driven by strong ad sales and the company even noted that large customers were spending more than the company expected when the government was seeming to have the brakes on the growth engine of China. Profits rose 80% to $295 million, or $0.84 EPS.  The revenue gain was 85% to more than $654.7 million.

Now that Google Inc. (NASDAQ: GOOG) is out of mainland China (search site Google.cn still redirects to Google.com.hk), Baidu is closing in on almost 76% market share of search versus close to 64% when Google was there in early 2010.  Baidu has launched many new services recently as it seeks to diversify itself from only search, but the company still is far more focused on web properties than Google has been.  Does that make it “better than Google?”  It all depends upon whom you ask.

As far as why Baidu is better than Apple Inc. (NASDAQ: AAPL) that is simple… we named Baidu as one of thirteen tech stocks with more upside than Apple.  At the time, its upside was 42% but its ADR was trading closer to $132 versus $144 today.  We still have an implied upside of 30% for Baidu versus about 24% today for Apple.

Are there some concerns?  Sure.  We have always had “value” issues with Baidu.  Baidu is a China-only play for the most part.  Google is now more than half-international in sales and still growing on that front.  We saw guidance for Q4 revenue was almost 85% from the fourth quarter of 2010, but that pace cannot be sustained ahead even in the great market that China is.  Thomson Reuters sees just over 50% revenue growth in 2012 versus about 80% in 2011.  Baidu also trades at about 32-times expected 2012 earnings versus just over 13.5-times for Google and versus almost 12-times for Apple.   Baidu is also worth $50 billion in market capitalization, so a 30% upside would imply a $65 billion value and that would be just above yet another all-time high.

Apple is down 0.1% at $404.11 and Google is down 0.3% at $596.90, but Baidu is up 4% at $144.00.  There are concerns and things to consider, but you can still argue that at least for today Baidu is better than Apple and Google. 

JON C. OGG

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