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“We are fully committed to pushing this transition forward and confident that our efforts in mobile monetization will pay off in the long run,” said CEO Robin Li in the third-quarter report.
The problem with this commitment is that it will take huge amounts of R&D spending, which will eat into the company’s bottom line, and it will take time. For the foreseeable future, mobile ads promise to earn the company less money than PC ads.
Smart competitors like Qihoo 360 (NYSE:QIHU) and Sohu.com (NASDAQ:SOHU) also have investors casting dubious glances at Baidu. While its share is currently dominant, a dramatic shift in market share is not out of the question. Qihoo launched its search engine only a few months ago, and already claims nearly 10 percent of the market share. Sohu.com’s search engine Sogou claims about 7.5 percent. Google, which officially exited China two years ago, lingers with about 4.5 percent of the share.
Qihoo looks like everyone’s favorite underdog, with its share price climbing over 38 percent over the last three months, and over 54 percent this year to date. Sohu.com has had a harder time pleasing investors, dropping over 25 percent this year to date.
One reason Google has maintained its position as the leader in search is that it has created an ecosystem of services to compliment its user experience. In many ways Google is a one-stop shop for gathering information through images, video, maps, and search. Perhaps taking a page from the Google playbook, Baidu is making a $1.6 billion investment in cloud infrastructure in order to produce a service like Google Drive.
While the strategy seems sound, the company has a long way to go before it offers a compelling ecosystem. The company has been criticized before for putting revenue ahead of its products. Baidu’s cloud initiative could be a clumsy one.
At the end of the day, it’s pretty clear why Baidu is at 52-week lows: investors don’t trust that the company will be able to stay ahead of the curve. All eyes seem to be on Qihoo and relative sophistication of its search engine.
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