Baidu as a Symbol of China’s Problems

It is the largest search engine in the country that has the most people online. Baidu Inc. (NASDAQ: BIDU), China’s largest search company, was supposed to challenge Google from Alphabet Inc. (NASDAQ: GOOGL) based on valuation, because Google held most of the world’s search markets, though it could not elbow its way into the People’s Republic. Baidu’s share price was over $250 just over a year ago. It is $172 now. Either the promise of Baidu has slipped away, or the prospects of China online have.

The rapid growth of China’s online population has taken it to approximately 700 million. At least of three-quarters of those people are online regularly. Search is a major component of online activity, not just in China but throughout most of the world. Based on all these factors, Baidu should be doing better.

Baidu’s market cap is $60 billion, compared to Alphabet’s at $492 billion, up 41% over the past year. Granted, Alphabet is the larger company based on sales. However, the stock market eyes future prospects as much as current ones. Something is wrong for Baidu.

One of Baidu’s advantages is supposed to be that Google cannot make any progress in China and is used by a tiny portion of China’s online market. The government probably has played a role in this. Even if not, Google is painted into a corner there.
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Baidu’s market cap may be suffering from the anxiety that the Chinese economy is no longer growing rapidly. Skeptics believe that the central government’s claim of 7% GDP growth is false and that the number is much lower. China’s stock markets, which have entered bear territory, serve to confirm that anxiety.

Baidu no longer has the hot hand in global search. Its unfortunate prospects may not be its own doing. Baidu may be doing business in a country where the growth prospects have come into question.