How Valuable Are Search Services To Baidu’s Business?

Baidu (NASDAQ:BIDU) is the dominant search engine in China, commanding an 80% market share in the search advertising business in the region. The explosive IT growth in China, complemented by consistently increasing internet penetration in recent years, has led Search Services to be the most valuable division within Baidu. According to our estimates, the Search Services division makes up approximately 75% of our $188 price estimate for Baidu’s stock, which is roughly 10% higher than the current market price.

The search advertising market in China has grown at a CAGR of over 40% since 2013 to become a RMB 68 billion (or $10.5 billion) market by the end of 2015. According to an estimate by iResearch, the search advertising market in China is expected to grow at a CAGR of just over 20% from 2016 through 2018 to become a $21 billion (or RMB 135 billion) market by 2018. Correspondingly, Baidu’s search revenues could increase by over 15% annually in the same period.

The total number of mobile unique accounts on Baidu’s search platforms stood at a 657 million at the end of 2015, which was 21% higher than the previous year. Baidu has witnessed nearly 20% annual growth in the total number of users. We currently forecast the user base to expand at 5-6% annually over the next few years to reach around 820 million unique accounts by the end of our forecast period.

See Our Full Analysis For Baidu.

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