Here’s Why Baidu’s Getting Beat Up

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Chinese search giant Baidu (NASDAQ:BIDU) has been getting beat up by analysts lately. Concerns over the company’s ability to monetize and competition from Qihoo 360 (NYSE:QIHU) have produced a line of downgrades and price target cuts.

On October 1, Cynthia Meng at Jefferies cut her price target from $135 to $125 and lowered the rating from “buy” to “hold.” On October 2, Aaron Kessler at Raymond James moved his price target to $137 from $165 and his rating down to “Outperform” from “Strong Buy.” Deutsche Bank also moved its price target to $137 from a high $186.

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Baidu is hands down China’s largest search engine. Analysts have cut back on it but there are still some compelling reasons to be bullish. An article at Seeking Alpha lists a few, including a 5-year average income growth rate of 86 percent and an average EPS growth rate of 73 percent over the same period.

TheStreet Ratings reiterated a “buy” on October 2, also highlighting revenue and earnings per share growth.

Qihoo has a much smaller share of the search market, but has been aggressively driving its service behind its more established anti-virus software and web browser. Similar to a strategy that Yahoo! (NASDAQ:YHOO) and Microsoft (NASDAQ:MSFT) might try in order to increase search engine share, Qihoo wants to drive traffic to a landing page or portal which uses its search service by default. The analogy isn’t perfect, but Baidu has been called the Google (NASDAQ:GOOG) of China.

There are a lot of eyes on Qihoo as the company has only been in the search game for a few weeks. Investors would hate to miss out on the little search engine that could. Qihoo jumped over 4 percent in morning trading on October 2 as more and more analysts vouch for it via Baidu downgrades.

Sohu.com’s (NASDAQ:SOHU) search service Sogou has also seen a few explosive bursts of growth, but it is not the favored underdog. If there’s a Baidu killer in China, it’s Qihoo — and that possibility is still way up in the air.

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