China's Internet giant Baidu Inc. (BIDU) announced that it is purchasing a stake in car-hailing app Uber Technologies Inc. in a bid to extend its penetration in local services in China. However, the financials of the deal were not disclosed by the company.
The announcement confirms last week’s media reports per which Baidu is expected to make an investment of up to $600 million. Uber will get cash and non-cash assets including Baidu’s online resources. Baidu is the owner of China’s biggest Internet search engine.
Per the terms of the agreement, Baidu will allow users of its mobile search app Mobile Baidu and Baidu Map to connect with Uber’s service. At present Uber is only available in nine Chinese cities and it expects to expand to 14 cities by Jul 2015.
The investment will benefit both Baidu and Uber in the long run. It will help Uber expand in the highly competitive Chinese market. Baidu, on the other hand, will gain more traffic which could boost its mobile payment system. It will also bolster Baidu’s location-based services.
Baidu’s investment in Uber will enable it to further strengthen its offerings in the space against China’s biggest e-commerce operator Alibaba (BABA) and Tencent Holdings.
The Chinese search engine behemoth has been boosting mobile investment, which has yielded results thus far. Its third-quarter earnings report showed that the 13% sequential and 52% year-over-year revenue increase was greatly helped by solid growth in mobile. Mobile revenues accounted for 36% of Baidu’s total third-quarter revenues.
The company also provided strong guidance for the fourth quarter, indicating increasing revenue contribution from mobile in the near future.
Shares of Baidu rose 1.8% yesterday. Some of the current buoyancy in share prices is related to its dominance in the mobile search market supported by its continued efforts to develop new products. Moreover, Baidu continues to gain market share. We believe that the company has significant growth potential in the mobile market over the long term.
Currently, Baidu has a Zacks Rank #2 (Buy). Other stocks that are performing well right now include Rackspace Hosting, Inc. (RAX) and Rovi Corporation (ROVI). Both stocks carry the same rank as Baidu.
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