Google vs Baidu

This morning Baidu takes a hit premarket and Google jumps up, because Google’s license for operating a web site in China has just been renewed. Looking at Google’s weekly chart reveals that the stock has been a laggard compared with the indices over the past months. The main reason has been the problem with the Chinese authorities, but there were also other clouds visible on the horizon.

Baidu’s chart shows that the stock has risen 6-fold over the last 18 month. Given the news today, the price could have exhausted its shorter term potential for now. So, GOOG has perhaps some snap-back potential, but isn’t at a high, while BIDU is at a high, but seems also to be expensive, at least in the short run.

Pricewise this is the classical situation, which leads so many to believe that the stock that fell back is the better investment candidate. Wrong, at least generally. In this case, however, there is new information involved. Google’s prospects in China don’t seem to be so dim as many have argued in the past.

Conversely there is still a risk that Baidu gets crushed by Google in the long run. It was the perceived elimination of this risk that made the stock run up so much, and not only the possible gain of Google’s current market share of web search in China.

Conclusion: For Baidu it seems better to wait for a real breakout of the base in a trend formation. Google may have some short term potential right now, but its growth also slowed down considerably since two years.