Alibaba has finally filed for a debut on an American stock exchange, and the story is likely to drive trading in a group of related stock until the offering actually takes place. On today’s market rival Baidu Inc (ADR) (NASDAQ:BIDU) was losing value, and looked like a particularly bad share to be holding on a bad day across the market. With Alibaba on the way to a public offering, Baidu certainly looks weaker, and it may suffer by comparison.
According to a couple of analysts who wrote about Baidu Inc (ADR) (NASDAQ:BIDU) on Wednesday argued against the company’s recent loss of value, and suggested that recent fluctuations in the stock are short term problems. Both Bian Stoffel of The Motley Fool and IAEResearch at Seeking Alpha reckon the company is primed for long term growth.
This year has been a record-breaking year for initial public offerings with companies going public via SPAC mergers, direct listings and standard IPOS. At Techlive this week, Jack Cassel of Nasdaq and A.J. Murphy of Standard Industries joined Willem Marx of The Wall Street Journal and Barron's Group to talk about companies and trends in Read More
Baidu jumps on long term trends
There is one unquestionable fact that investments in Baidu Inc (ADR) (NASDAQ:BIDU) have to be based on: The Chinese internet marketplace is growing. Both analysts use this truth as their starting place as they look at the fundamental drivers of value in Baidu Inc (ADR) (NASDAQ:BIDU) stock.
Stoffel asks a simple question: “Imagine being able to invest in a company that has a huge market share in one of the world’s quickest-growing economies and resides in a space where extracting money from business has proven lucrative. Sounds like a great investment, right?” The only real risk, according to Stoffel, is that the Chinese government intervenes in the sector.
According to IAE Research, Baidu is very well positioned in the Chinese web video market. The analyst reckons the firm could be worth $5.85 billion by 2017. with video advertising a key part of its future strategy, and other competitors coming at the problem differently and without the current presence of Baidu, that could be one of the most meaningful growth areas for the company in the years ahead.
Baidu compares poorly to Alibaba
In 2014 all valuations for Alibaba have been looking up. The company’s earnings have come in higher than expected, and analysts seem ready to imagine numbers to estimate the market cap it will hit on IPO. For Baidu Inc (ADR) (NASDAQ:BIDU) things haven’t been quite as good. The company has lost more than 16% of its value since the year began, and it hasn’t been looking stronger on the back of despite better than expected earnings.
All of this could, of course, stem from simple momentum. Perhaps the value of Alibaba is going up because people are hyping it, and the value of Baidu is going down because it is returning to a more reasonable valuation. The company is still trading at more than 23 times last years earnings, despite the $52 billion market cap it commands. Alibaba, on the other hand, is set to be valued at something between $150 and $200 billion when it makes shares public.
There is no direct comparison between the two companies, however. Baidu Inc (ADR) (NASDAQ:BIDU) is comparable to Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), while Alibaba is much closer to Amazon.com, Inc. (NASDAQ:AMZN). There is certainly friction between those two companies, but there is little direct competition. Investors should be investing in Baidu in order to get exposure to a growing search market in the country.