Baidu (BIDU) is making a controversial expansion into the smartphone market. But given the search engine’s dominance in mainland China and imminent iPhone integration, analysts argue Baidu stock is largely undervalued.
Baidu's plan to launch an economic smartphone with its own operating system, Baidu Cloud, is an ambitious strategy to exploit the rising mobile market in China - “a big future,” remarks internet expert Liu Xingliang.
Releasing the ¥899 phone ($142) targeting lower-end customers is arguably a crucial step for the company to help carve market share from companies like Tencent (TCEHY.PK), who enjoy early entry advantage.
“It is both a defense and an offense strategy,” says technology critic Jia Jinghua. Most mobile users now access Baidu through third-party internet browsers or applications. Both Apple (AAPL) and Android (GOOG) smartphones use Google as a default search engine - a big threat to Baidu stock, says Jia.
Internet growth in China has reached a ceiling with netizen increases slowing. This makes the search for new profit growth one of the company’s priorities.
While Baidu essentially monopolizes Chinese internet search with a market share of nearly 80%, its mobile market share is only around 37%. This is not far ahead of runner-ups easou.com and SOSO.com with roughly 22% and 20% respectively, according to iResearch.
A proprietary smartphone with Baidu’s own mapping, search, and keyword input baked-in will give mobile users more access to Baidu’s services and products - and most importantly, its ads.
