However, Google left China in March 2010 after its founders decided they no longer wanted to comply with Chinese censorship restrictions. This decision led to Baidu doubling over the course of the next year. In the last six months, Google's Chinese market share has dropped precipitously.
But now there are several Chinese companies showing great interest in coming after Baidu in search. Alibaba has said it wants to do this in the future. Smaller Qihoo 360 (QIHU - Get Report) has shown the most ambition to get into the space and started to take some real market share in the PC space at least, around 10%.
At the same time as newer competitors are starting to salivate at the possibility of getting into the space to compete with Baidu, Baidu has been showing decelerating growth. Its most recent quarter reported in October showed the slowest growth of any quarter they've reported for the last two years.
Adding to the concerns of Baidu longs is that Baidu's valuation is still sky-high. The forward P/E is 11.5x. The price-to-sales is over 10x. The enterprise value-to-Ebitda is over 16x. If Baidu continues to show soft growth, investors might start punishing the shares.Baidu's stock is already off one-third from its all-time high of $154/share. But it could get worse in 2013. Baidu's market cap is now at $33 billion. Meantime, Tencent is up at $60 billion. Alibaba is prepping to IPO in 2013 and could be valued as high as $80 billion when it does go public. China's three Internet giants are going to become two in 2013. At the time of publication the author had a position in YHOO. Follow @ericjackson This article was written by an independent contributor, separate from TheStreet's regular news coverage.