Baidu Blows By The Competition

The Bejing-based Internet search engine - often tagged as China's version of Google Inc. - saw its stock deflate significantly since a splashy U.S. market debut in which it soared 345 percent to $122.54. Baidu shares have begun to rebound just as a number of Wall Street analysts are seeing promise in some of its U.S. listed competitors: Sina Corp., Sohu.com Inc., and Netease.com Inc.

"Our view of the China Internet industry is attractive," said Richard Ji, a Hong Kong-based analyst with Morgan Stanley. "While early stage and risky, we believe the Internet is among the fastest expanding industries in China and may offer investors one of the best ways to benefit from China's robust consumer market growth."

Morgan Stanley initiated coverage of Sohu.com with an "Equal Weight" rating. The Beijing-based online media and mobile communications company is seen being China's "purest" advertising portal, and could benefit from sponsored search, online properties and a recovery at its mobile telephone services unit.

Relative to other listed rivals - except Baidu - Sohu generates the most revenue from paid search. The company claims 10 percent of its sales comes from paid search, which represents about 15 percent of China's total search industry revenue in 2004.

Internet provider Sina was upgraded to an "Outperform" rating by Goldman Sachs, which set a 12-month price target at $31. Shares of the company spiked $1.48, or 5.6 percent, to close at $27.95 on the Nasdaq.

James Mitchell, an analyst with Goldman, said in a report that Sina is expected to benefit from strong advertising revenue and search functions this year. He said advertising revenue is currently in a mid-cycle pause, but should soon emerge from that and help the company maintain its position as China's largest advertising portal.

"Our preferred Asian Internet stocks are Tencent, NHN, and Sina, reflecting our preference for market-leading community-based, search, and brand advertising businesses," Mitchell said in a report.

Look out North American investors as the Asian Invasion has begun. If you have the risk tolerance to invest in these companies, hold on to your seat bealts as you will be in for one heck of a ride.

About the Author:

Carmen is the VP Client Relations of Ms. SEO Inc., a Calgary based Search Engine Optimization & Internet Marketing Company. Ms. Seo Inc. works with their sister company Ms. Hype Inc., a Calgary Web Design Company, and their parent company Cre8 Hype Solutions Inc., a Calgary based Internet Marketing Company, to offer their clients a powerful online presence.