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Stock Strategist

Baidu Needs to Up Its Game in Mobile Internet

Even so, threats from search newcomer Qihoo are overblown.

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The shares of Chinese search engine  Baidu (BIDU) have taken a beating recently, shedding more than 20% over the past three months, while other major Chinese Internet names like Sina (SINA), NetEase (NTES), and Tencent (00700) were mostly on an upward trend (more than 7% on average). We believe Baidu's weak share performance has been driven largely by investor worries over the competitive disruption from Qihoo 360 (QIHU), which launched its search service in late August, but we think such worries are overblown.

We agree that Qihoo is capable of garnering share in search traffic in the near future, given a large installed base in its popular antivirus and browser services, but the firm is years behind Baidu in search technology and database, which will be crucial in determining whether Qihoo can sustain its appeal to search users over the long term. More important, as a newcomer in paid search, Qihoo is at an early stage in understanding the needs and preferences of ad spenders and in establishing a technology platform and the necessary sales support that can remotely match what Baidu currently offers in order to monetize the search traffic and help advertising clients generate desirable marketing returns on investment.

Dan Su does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.