Google Inc.’s impasse with the Chinese government could lead to Baidu Inc. becoming a monopoly in China’s search market. This obviously has long-term strategic implications that the market is trying to wrap its head around.
In order to value Baidu shares, RBC Capital Markets Stephen Ju introduced a scenario analysis based on a 75% chance that Google withdraws from China. As a result, his price target climbs from US$403 to US$554.
“We have assigned a higher probability to the scenarios that contemplate a Google exit, as we believe its position in China has become untenable,” Mr. Ju told clients.
The Chinese government has little incentive to agree to any concessions on unfiltered search, so Google’s days in China are numbered, he added.
However, Alibaba Group’s Taobao is apparently preparing a general search platform as it seeks to leverage its traffic into additional businesses. Since e-commerce traffic comes with the intent to buy something, it is very valuable, which makes Taobao a potential threat to Baidu in the long run.