2010 was not a good year for Google China.
Starting in January of that year, when Google publicized an ominously-named “Operation Aurora” — a multi-pronged and ongoing hacking attempt originating in China and targeting a number of Western companies, including Adobe Systems, Yahoo, Morgan Stanley, Northrop Grumman, and Google itself — a war between the world’s biggest search engine and the all-powerful Chinese government began.
In response to the hacking attempt, Google announced it was would start “censorship-free searching” in China, or pull out of the market altogether.
Not one to take threats lightly or sitting down, the ruling party of China banned Google entirely in mainland China on March 30 of that year.
It was a ban that lasted exactly one day.
After a few months of redirects from to Google.hk, Google’s Hong Kong-specific domain, normal searching resumed…
But it was too late. The damage was done.
At its peak in the Chinese market, GOOG commanded nearly 30% of the nation’s daily searches — not a small chunk of service, considering China’s 550 million Internet users.
Between the events of 2010 and October 2012, that market share fell by 84% to just 5% — effectively taking the world’s dominant name in search to a second-tier brand name in one of the fastest growing Internet markets in existence.
The vacuum this debacle created, however, was not without its winners…
And today’s biggest name in search in the world’s most populous country is one most Westerners have never heard of.
Baidu.com (BIDU-NasdaqGS) is listed as the fifth most heavily trafficked site in the world, according to the Internet ranking index Alexa.
That may seem like a far cry from Google’s #1 ranking… but when it comes to Internet companies, these days, value is all about brand growth potential.
Have Brin and Page Met Their Match?
Founded in 2001 by Robin Li and Eric Xu, Baidu controls an index of over 740 million Web pages, 80 million images, and 10 million multimedia files.
Google, by comparison, indexes billions of Web pages and perhaps as much as 100 times the number of images and multimedia files.
In the fourth quarter of 2010, Baidu was responsible for more than 55% of the nearly four billion Internet searches made in China.
In 2012, Google did just under that same volume of queries — about 1.8 billion — each and every day.
But what appears to be a drop in the bucket compared to the world’s second most recognized brand (after Apple) is an investor’s dream in the making…
With a total market capitalization of $56 billion to Google’s $345 billion and an equally diversified approach to business expansion as their world-dominating counterpart, Baidu’s potential for growth is decidedly greater.
Offering 57 search and community services, including an online encyclopedia (Wikipedia has been banned in China since 2005), Li and Xu’s brainchild has plenty of room for expansion within their own still-developing domestic market.
The biggest advantage they hold, ironically, has little to do with the services they provide and everything to do with the nature of the market itself…
As of today, it is estimated that 85% of Americans visit the Internet on a regular basis. Europe, as a whole, stands at around 70%, with Western European usage rates comparable to those in the United States. As mentioned before, of China’s 1.31 billion-strong population, only 42% can be considered regular Internet users.
However, while Europe and North America have clearly outlived the golden age of Internet expansion, the Chinese are just beginning theirs…
With stationary and mobile Internet usage on a rapid upswing in the world’s most populous nation, Baidu is uniquely positioned to maintain growth potential for years, perhaps decades, to come.
The fact that the Chinese Communist party has effectively ended Google’s presence in mainland China (Google China’s Alexa ranking is a relatively abysmal 225) only clears the road for Baidu to swallow more and more of this rapidly ballooning market.
The Frugal Billionaire
Of course, there are some purely cultural differences that will forever separate these two giants of search.
Robin Li, Baidu’s more famous co-founder and the company’s biggest shareholder (net worth estimated at $10 billion) has reportedly yet to monetize a single dollar from his stake in the company.
The same cannot be said for either of Google’s founders, Larry Page and Sergei Brin, who, with a combined net worth of almost $50 billion, travel the world in a customized Boeing 767. (And maybe they bought that toy through the corporation, but you get the idea…)
That fact, however, should not affect an investor’s decision to take a chance with this uniquely positioned dot-com.
Like Google, Baidu stock is available to Western investors on the Nasdaq, where it debuted to a staggering 354% gain on August 5, 2005. (Google saw an 18% appreciation when it went public the previous year.)
After splitting 10 to 1 in May of 2010, Baidu’s stock currently trades in the $160 range.
China’s population of Internet users has quadrupled in the eight years since the IPO, but there is still a long way to go before they even begin to approach usage rates in the West.
With any luck, Baidu.com will be there, growing right alongside them.
Yours in wealth,
Brian Hicks
Check us out on YouTube!Brian is a founding member and President of Angel Publishing. He writes about general investment strategies for Wealth Daily and Energy & Capital. For more on Brian, take a look at his editor’s page.
