Is Baidu’s fallout suggesting something?

A 60% haircut within a year! That’s what is happening to Biadu, the Chinese version of Google! As you can see the chart below, this is not just an one time short-term faltering but rather more likely a long term fallout for BD. After all, it has broken down from its long term uptrend, and big time! This is ominous by itself but I’m afraid there is something more to it. Let me explain.

 
No secret that BD is one of those protégées that won’t be able to stand up comfortably by themselves. You see, in the past decade it has basically got free pass to the world biggest market without any competition simply due to the government’s protection against foreign players, mainly Google. I don’t want to get into political debate on this sensitive topic but needless to say this artificially created moat has enabled BD to be the only one to profit from this fastest growing search engine market. The past 10 years have been the period for an explosive expansion in online businesses and BD has one of those benefiting the most. Unfortunately monopoly always leads to corruption and ill business behavior, no exception for BD. Greediness has let BD do something really disgusting in order to make more money at the expense of consumers’ interest. The most notorious example is the so-called “paid for prominent placement policy” for its advertising business, the main bread-earner for BD. Basically BD would place anyone who was willing to pay highest ad money to the top search position regardless of legitimacy.  The result? BD has made enormous money but its search results can hardly be trusted as widespread fake businesses are often listed or shown at the top of the search result. This loathful business practice has eventually costed life with some fatal outcome involved due to fake information on healthcare related products. Although everyone in China now knows anything coming out from BD search cannot be trusted, nevertheless people living there have no other choice to go around as there is nothing else available as a good alternative on the same scale. I guess you don’t need to be a genius to figure out what could happen to BD if Google were allowed to compete for online search, right?
So BD had been really in a tear in moving up in the past decade or so, so much so that it has even easily beaten Google by a wide margin in terms the stock performance. One could have made much more money with BD than Google in the past 10 years although businesswise, Google has evolved into a truly wonderful congregate with a wide range of touches into many different areas in addition to its main search engine business, when BD is busy with how to effectively cheat consumers.  But finally its “glory history” in terms of stock price appreciation may have come to its end. Since a year ago when it peaked around $280, BD has entered a downward trend. The past month has been extremely dreadful for it as it has declined over 30% within weeks with a waterfall type of crash. While it is not a surprise at all to me to see this persistent downtrend for BD, what makes me think more is the recent freefall in the context of the escalating US-China trade battle. No secrete that I don’t believe at all there will be a real trade war and a trade deal will be signed off sooner or later as I have said many times. Maybe the market is telling us something that a trade deal may indeed very likely, in which among many other concessions by the China’s side, the strict restriction against other competition for the online business may also be loosen somewhat. In other words, we may start to see something to be worked out that will allow Google to be able to operate again in China. If this is indeed the case, watch for the demise of BD if it does not immediately truly transform itself to a better business operator. Before we see that, BD is not touchable as an investment, although swing trading could still be done due to its volatility. I could be wrong and I may be thinking too much about it but this is how I’m seeing Baidu at the moment!