Chinese Internet Weekly Note
In our Chinese Internet note this week we focus on Baidu (NASDAQ: BIDU) and Renren (NYSE:RENN). While Baidu maintained its dominance in mobile Internet search in China in 2014, it is facing strong competition. Meanwhile it is seeking to improve its video hosting site through a partnership with Intel (NYSE:INTC). Another Chinese Internet company, Renren, has invested in a stock trading website.
Baidu’s Continuing Dominance In Mobile Search Attracts Competitors
Baidu’s mobile search app. which is the market leader with 136 million active users, registered good growth in 2014. The service registered a 105% year on year increase in the number of websites included in the search results. Although the growth in the number of active users of smartphones slowed in 2014, mobile search queries on Baidu’s mobile search increased. This increase was helped mostly by search queries on education and lifestyle. These items registered increase in search queries of 191% and 142%, respectively. [1]
Alibaba (NYSE:BABA), meanwhile, is trying to dislodge Baidu mobile search from its perch. Its Shenma service is believed to have a 20% mobile market share by volume, while Baidu has 60%. Shenma is a joint venture of Alibaba with browser maker UCWeb, in which the latter holds the controlling stake. The key selling points of its search engine are more streamlined search results and better integration with Alibaba’s other services. Analysts believe UCWeb browser’s user base and Alibaba’s brand awareness and e-commerce services will help Shenma compete successfully in the mobile search category. However, Baidu’s lead in the category is expected to remain. Its monetization is also expected to improve on the back of more aggressive spending by customers on search advertising. [2]
Baidu’s Online Video Arm Partners With Intel
Baidu has partnered with Intel to improve its online video hosting service, IQiyi. IQiyi contributes 7.74% of the value of Baidu. The partnership with Intel is aimed at boosting the division’s video storage, cloud computing and big data analysis capabilities. Intel is expected to help IQiyi with the renovation of its data center and content distribution network. To this end, Intel will provide IQiyi with processors, solid state drives and Ethernet adapters. The deal will help IQiyi realize its aim of doubling original content in 2015 on a year on year basis. It also comes close on the heels of another deal with Dolby laboratories for their surround sound technology. [3]
We have a price estimate of $211 for Baidu, which is slightly lower than its market price. We have a revenue estimate of $7.7 billion for the company in 2014, which is a little less than the analysts consensus estimate.
Renren Invests In Stock Trading Firm
Renren has invested $40 million in stock trading site Motif Investing. The website lets users invest in baskets of stocks, and currently has about 120,000 users. It has received investments from Goldman Sachs and J.P. Morgan Chase. With the new funding from Renren, the company plans to diversify into selling portfolio management tools for wealth managers and financial advisors. [4] It will also expand its operations to the U.K. and Hong Kong. It is aiming to eventually enter China, an endeavor in which it will benefit from Renren’s presence in that country. [4]
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