The Chinese search engine market just got a lot more interesting.
Mobile gaming and online chat giant Tencent is shelling out $448 million for a 36.5% stake in Sohu.com Inc (NASDAQ:SOHU)‘s majority-owned Sogou platform.
Sogou is a distant third in China’s search market, but it was widely assumed that Qihoo 360 Technology Co Ltd (NYSE:QIHU) would be the one gobbling it up to have a clearer shot at market giant Baidu.com, Inc. (ADR) (NASDAQ:BIDU).
Sohu.com Inc (NASDAQ:SOHU)’s stock naturally opened higher on the news. Qihoo 360 Technology Co Ltd (NYSE:QIHU)’s shares opened lower. The moves make sense. Rumors were swirling earlier this summer that Qihoo would pay up for Sogou, and now Sohu’s scoring a major investment without having to give up majority control. Qihoo will now be destined to remain a distant second in this race.
Qihoo 360 Technology Co Ltd (NYSE:QIHU) was able to get up to speed so quickly in search — from zero when it launched last summer to as much as 15% of the market by some counts today — because it merely parlayed its success operating China’s leading Internet browser and security software suite. Won’t the same thing happen now with Tencent funneling traffic to Sogou?
There’s plenty room for several relevant players in the world’s most populous nation.
J.P. Morgan made that clear last month when it established bullish ratings and lofty price targets on Qihoo 360 Technology Co Ltd (NYSE:QIHU) and Baidu.com, Inc. (ADR) (NASDAQ:BIDU) last month. Both of those companies are growing faster than the search stars closer to home for stateside investors. Tencent’s arrival doesn’t necessarily have to be a bad thing. It’s not as if search needs any validation. The merits of reaching folks online at the moment that they’re looking for something is clearly the sweet spot of online marketing. However, Tencent’s grip on young Internet users may make paid search more inviting for a new wave of marketers.
Investors in Baidu.com, Inc. (ADR) (NASDAQ:BIDU) and Qihoo 360 Technology Co Ltd (NYSE:QIHU) don’t need to panic just yet. Qihoo’s been posting stellar growth from its non-search business, and Baidu’s been able to post healthy growth in all competitive climates. Sohu.com Inc (NASDAQ:SOHU) is the clear winner in this deal — especially if associating itself with Tencent makes Sogou more prolific. However, just because there’s a clear winner doesn’t mean that everybody else is a loser.
China isn’t everything
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it’s “the next trillion-dollar industry.” And everyone from BMW, to NIKE, Inc. (NYSE:NKE), to the U.S. Air Force is already using it every day. Watch The Motley Fool’s shocking video presentation today to discover the garage gadget that’s putting an end to the Made In China era… and learn the investing strategy we’ve used to double our money on these three stocks. Click here to watch now!
The article Tencent Beats Qihoo and Baidu to the Punch originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu, Nike, and Sohu.com. The Motley Fool owns shares of Baidu and Nike.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
