Baidu.com Basks in Google's Glow, Up Over 8% Ahead of Next Week's Earnings

Chinese Internet search giant Baidu.com, Inc. (NDAQ: BIDU) is benefiting heavily today from Google Inc.'s (NDAQ: GOOG) unexpectedly strong results. Baidu.com is up significantly on sentiment that Google is a good barometer for the entire Internet search sector, but especially Baidu.com.

Mountain View-based Google announced a 31% increase in first quarter profit to $1.31 billion from $1 billion last year on revenues of more than $5 billion. As Google CEO Eric Schmidt said, paid-click growth was “much higher” than analysts expected.

This news is clearly good for Google – and it shows with the stock up more than 20% today – but how good it is for Baidu.com depends on how true the moniker “the Google of China” is for the company.

For starters, Baidu.com is much, much smaller than Google. With a market capitalization of under $12 billion and earnings per share (EPS) of $2.59, Google's quarterly earnings are significantly higher than Baidu.com's annual earnings. Even more staggering, Google has enough cash on hand to buy all the outstanding shares of Baidu.com with money to spare.

These differences, however, are really just quantitative not qualitative – in reality Baidu.com is very much the Google of China and its smaller size just reflects the less developed economic stage of China's Internet use. Google's mission is to “organize the world's information” and it uses superior search combined with specialized image search, map searches and a large list of other tools to do so combined with an increasingly large offering of applications. The profit engine that enables such services is of course targeted “paid-click” advertising.

Likewise, Baidu.com certainly seems to want to organize the world's information, or at least the world's information in Chinese – the company's flagship product is an Internet search algorithm that is considered superior to Google's for the Chinese-language because of such features as the ability to search by phonetics, combined with a specialized mp3 search, image search, video search, news search, financial search and even a “Baidu Encyclopedia” - to name only a few.

Baidu.com also largely utilizes a “paid-click” advertising model often described by the company as “pay-for-performance.” In the same manner as Google, Baidu.com advertisers are allowed to bid for keyword search result placement. Also, even a tertiary view of Baidu.com immediately reveals the stunning similarity in website aesthetic and design between the two companies. Perhaps most importantly, Baidu.com has succeeded in becoming the dominant search engine by market share in China, like Google has in the U.S., with over 60% of the market.

Next week, on April 24, Baidu.com will release its first quarter results. Until then investors are left using Google's earnings as a proxy for how Baidu.com will perform, but it looks like such comparisons are justified - as of publication, Baidu.com is up almost 9% because of Google's surprising results.