This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Google Still Better Bargain Than Baidu

Stocks in this article: BIDU QIHU GOOG YHOO

NEW YORK ( TheStreet) -- Baidu ( BIDU ) extended its 12-month decline to 36% on Friday, raising questions as to whether the Chinese Internet search leader could become a magnet for value investors.

"It's certainly come down a lot from a high of $135 just a few months ago," said Brian Frank, portfolio manager at New York-based Frank Capital which oversees about $50 million in assets and specializes in value-stock investing using the Enterprise Value relative to EBITDA metric.

Baidu lost 7.9% on Friday to close at $85.02.

Frank said that based on this metric, Baidu was trading at 13.7x enterprise value to EBITDA in the last 12 months. By comparison, Google ( GOOG ), which Frank Capital owns, was trading at 13.4x.

" I would probably demand a discount if I was going to buy Baidu, I would demand a discount to Google ( GOOG )," he said. "Google is just much more globally diversified and I really like their advantages in smartphones, with the Android operating system. So the fact that Google is kind of embedded in the Android operating system is a tremendous advantage in trading at a premium to Baidu."

"Baidu is getting there, with a couple of more days like this then I'll definitely be looking at it, but I don't think it's quite there yet," Frank added.

Google fell 1% on Friday to $801.42. The world's largest search engine has gained 30% in the past 12 months.

Echo He, an analyst at Maxim Group in New York has a "sell" rating and $75 price target on Baidu on expectations that margins will have to keep on sliding, along with the existing pressures on revenue, as the company pours resources into defending its traditional PC-based source of revenue and accelerating its market share in the increasingly dominant mobile-internet space.

"Even if it falls lower, I wouldn't recommend buying the stock if the margin declines have not stopped," said the analyst. "Low price and low valuation is not sufficient to buy a stock. Low valuation plus margins staying flat or starting to improve vs. continuing to decline is a point where value investors may own."

Baidu's PC-based revenue growth continues to lose steam due to a slowing economy and growing competition on mobile and PC, compounded by the growing popularity of mobile that's cannibalizing PC search queries.

On the PC search-side, aggressive new rival Qihoo ( QIHU )has become a formidable rival, and on the mobile side, a handful of private companies including Tencent have emerged as genuine threats.

Management reiterated during the company's first-quarter call Thursday its commitment to investments in mobile R&D and marketing, cloud services and acquiring smaller companies as it strives to seek new avenues of growth in online and mobile search and online videos. They must also defend their current market share by putting more money into sales and marketing promotions.

Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs