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It may be a tough year for China, but it's been a stellar year for shareholders in Chinese Web search firm
BIDU). Shares of "the Chinese Google" have rallied more than 48% since the first trading session of the year, stomping the market's impressive upside here at home. And fund managers keep buying, hiking their stake in BIDU by close to 70% in the latest quarter.
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Baidu is the incumbent Internet search provider in China, boasting around half a million advertising customers and search traffic that puts it in the top five most-trafficked sites in the world. Baidu's business model is effectively the same as Google's, with paid search making up the brunt of its strategy. It's real economic moat comes from the challenges of operating in the challenging Chinese market. With Google's exit from China in 2010, one of the biggest competitors sent a conspicuous message to other Western search providers that doing business in China wasn't worth the trouble, limiting the chances that someone else will take Google's place (and market share).
It doesn't hurt that Baidu is flush with cash right now. Net of debt, BIDU's balance sheet carries around $23.9 million in cash, implying that close to half of the firm's total market capitalization is covered by money in the bank. That's exactly the sort of bargain that hedge funds are chasing right now -- and investors could do worse than following suit this quarter.