Baidu is gaining market share

With a strong earnings report yesterday Baidu surpassed analysts’ expectations but seemingly didn’t surprise investors. Despite beating on the top line by 4c, revenues by a small margin and guiding revenues up for the next quarter, the stock was a relative laggard today. Revenues growth of 74% over the last year was still exceptionally strong for a company of this market capitalization.

The total Chinese search market grew by 53.2% in the second quarter alone, which seems to attribute massively to the revenues jump of Baidu’s latest quarter. Only the second reason was the decreasing competition from Google.

During the last 6 month Google lost 5.5% market share of the Chinese search market down from 32.8% and Baidu gained 6% over the 64.8% it had at the end of 2009. Due to Google’s semi-exit in the Chinese search business, Baidu was able to abruptly reverse the longstanding trend of the years before, where Google ate slowly but steadily into Baidu’s market share. For comparison here is the long term chart of GOOG since its IPO.

Google seems to be already a mature company, while Baidu’s fundamentals are still shooting up. But after the hesitance BIDU showed today to reward investors for this phenomenal quarter with an exploding price, my conclusion is still the same: For Baidu it is probably better to wait for a breakout of the base in the long term trend and Google is the inferior investment compared to Baidu.