Thursday, August 30, 2012

Baidu.com, Inc. (ADR)(NASDAQ:BIDU) shares Slump after analyst questions its tactics to retain market share

Analysts have started questioning Chinese search engine, Baidu.com, Inc. (ADR)(NASDAQ:BIDU) ‘s tactics to retain its market share. On Tuesday, the company started redirecting search traffic from smaller rival Qihoo to its own home page.

Baidu shares fell on Wednesday after an analyst queried whether this strategy could backfire on the company. Shares in China's biggest search engine fell 6 percent to $113.34, while that of Qihoo rose nearly 3 percent to $22.18.

Baidu has about 80 percent of the search market share in China but recent entrant Qihoo has started to trouble the company's position.

On Tuesday the company resorted to guerrilla tactics to counter the potential threat, provoking criticism from the analyst fraternity. From Tuesday, those who put in a search query on Quito’s 360 Comprehensive Search Engine found that they were directed to Baidu's home page where they had to type in the query all over again.

Stifel Nicolaus analyst George Askew said the tactic could backfire on Baidu, and another analyst reduced her price target on the Chinese search giant.

Qihoo launched its service on Aug 16 and since then its shares have risen nearly 19 percent, while those of Baidu have fallen about 15 percent.

“By doing this, we believe Baidu is expecting that users will identify Qihoo with a poor search experience, and bypass Qihoo completely and begin searches at Baidu,” Askew said in a note. “However, the risk is that Qihoo users simply select a different search engine within the search category, and avoid Baidu.”

Askew, who expects the battles between Baidu and Qihoo to get even nastier, has a buy rating on Qihoo with a target price of $31.

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