Despite fears of a slowing Chinese economy, it is still a rapidly developing market that has four times the population of the U.S. Thus, there is great opportunity for all business, especially in the ever-evolving web, including search, a space where clear leaders are emerging; and opportunities are being presented.
A market not owned by the search king
Google Inc (NASDAQ:GOOG) is, without question, the U.S. search market leader. In fact, Google Inc (NASDAQ:GOOG) controls about two-thirds of this $22 billion U.S. market, a market that continues to grow by double digits year-over-year in number of core searches.
While many know that Google Inc (NASDAQ:GOOG) controls the search market, and that the majority of the company’s revenue is earned through search and advertising, Google is also the leader in global search. Yet, the one large market that Google has not captured, and likely won’t, is China.
In the month of June, Google Inc (NASDAQ:GOOG) had just 2.1% of the Chinese search market, which was down from 4.7% in October, according to the research firm CNZZ. Instead, Baidu.com, Inc. (NASDAQ:BIDU) is the Google of China, having 69.4% of the market.
The Chinese search leader…For now!
If you were to visit Baidu.com and then translate it to Google.com, you’d find that it is nearly identical to the U.S. version of Google.com. Baidu.com, Inc. (NASDAQ:BIDU) has flourished by controlling the Chinese space, trading at eight times sales and producing growth of 40% year-over-year.
In terms of investment outlook, there are many who believe that the Chinese search market could produce some of the greatest gains in the market, as it is still being developed. Like I said, China has four times the population of the U.S., yet its largest market player, Baidu.com, Inc. (NASDAQ:BIDU), produced just $3.8 billion over the last 12 months, or 7% as much revenue as Google Inc (NASDAQ:GOOG).
As you can see, there is a lot of room for a company such as Baidu.com, Inc. (NASDAQ:BIDU) to grow, but strangely, it is not the most promising player in the Chinese search market. Instead, Qihoo 360 Technology Co Ltd (NYSE:QIHU) is the company that you should be watching.
An emerging favorite
In the last year, Baidu.com, Inc. (NASDAQ:BIDU) has lost 23% of its value, despite 40% growth, and Qihoo 360 Technology Co Ltd (NYSE:QIHU) has seen its valuation rise 186%. While Qihoo also offers virus protection and desktop applications, the company is emerging as a search leader in the Chinese market, which is why its stock is shooting higher.
Currently, Qihoo is trading at 15 times sales and is producing revenue growth of 60% year-over-year. The company is yet to monetize search in the same way as either Baidu or Google, but nonetheless, it is still taking market share.
In the month of June alone, Baidu’s share fell from 73% to 69.4%. Meanwhile, Qihoo’s share rose to 15.3% from 9.6% since October 2012. In an industry that is growing rapidly by itself, this stolen market share is sure to produce even greater growth.
