Baidu Deal Could Corner Chinese Travel Market

06/27/2011 2:51 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

This deal quite probably wouldn’t pass regulatory scrutiny in the United States. Good thing, then, that it’s being done in China.

Baidu (BIDU), China’s leading Internet search company, is making a $306 million investment in Qunar, the leading Internet travel search engine. The deal, set to close in the third quarter, will make Baidu the majority shareholder in Qunar.

Meanwhile, back in the United States, three state attorney generals have begun antitrust investigations into Google’s dominance of online search. Google’s share of the US search market dipped ever so slightly (to 64%) in May.

Google’s share of the online search market in China fell to 19.2% in the first quarter, from 19.6% in the fourth quarter of 2010, as the company’s refusal to self-censor its content continued to erode traffic. Baidu’s market share climbed to 75.8% from 75.5%, according to Analysys International.

Baidu’s investment in Qunar—which means, the company says, "Where do you want to go?" in Chinese—is part of Baidu’s effort to monetize its huge share of China’s Internet search traffic by adding more revenue-generating activities. One example: in March, Baidu bought a stake in Anjuke, a Shanghai-based real-estate listings site.

Baidu’s investment in Qunar follows Tencent Holdings' (TCEHY) $88 million purchase of a 16% stake in online travel company ELong. With that deal, Tencent Holdings—the largest instant messaging service in China—became the second largest investor in ELong behind Expedia (EXPE).

Both deals indicate how hot the battle for market share in the travel market has become. Ctrip.com International (CTRP) is the leader in that market, but faces increasing competition from online travel engines. (Although Ctrip.com was a pioneer in Internet travel services, it still does 70% of its bookings through telephone call centers.)

As the sell-off in Chinese stocks continues from their April high, shares of Baidu seem to have established support at $117. The 200-day moving average stands at $117.30, and the sell-off low is just slightly below that level.

With the stock trading at $132.60 on June 27, the shares are closer to the top of their range (as defined by Bollinger Bands) of $138.65 to $112.93.

I think you should get at least one more chance this summer to get them below $120. I’m adding Baidu to my watch list with this post.

Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. The fund did own shares of Baidu and Tencent Holdings as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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