Baidu Inc. (BIDU), operator of China’s most popular search engine, led a third straight weekly rally for the country’s stocks traded in New York as better-than-estimated earnings and acquisitions announcements boosted the outlook for the industry.
The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. rose 3.3 percent last week to 92.88. Baidu, which reported second-quarter profit that beat forecasts after buying a mobile application store earlier this month, jumped 15 percent in each of the past two weeks. NQ Mobile Inc. (NQ) posted a record 11-day winning streak as it formed a partnership with Baidu. Online fashion retailer Vipshop Holdings Ltd. (VIPS) surged 13 percent after an analyst said it may be acquired.
Baidu Chief Financial Officer Jennifer Li said in an interview that the company is actively looking for more purchases after the company announced a $1.9 billion deal to buy app store 91 Wireless on July 15, seeking to gain a greater share of the growing mobile user market. Smaller rival Qihoo 360 Technology Co. said it’s in initial talks to buy Sohu.com Inc. (SOHU)’s search unit. Vipshop may become a target for Alibaba Group Holding Ltd. as China’s biggest e-commerce company prepares for an initial share sale, according to 86Research.
“China’s Internet giants are all trying to buy businesses that complement their existing operations as they are competing for the No.1 position in the sector,” Gavin Ni, founder and chief executive officer of Beijing-based Zero2IPO Group, which manages $500 million in venture capital, said in an interview at Bloomberg’s headquarters in New York on July 26.
The iShares China Large-Cap ETF (FXI), the largest Chinese exchange-traded fund in the U.S., advanced 2.9 percent last week to $34.72 in a third week of gains. The Standard & Poor’s 500 ended the week little changed.
Baidu’s American depositary receipts surged to $127.56 last week, the highest level since August. Its 30 percent jump since July 12 was its best two-week gain since April 2008.
“We keep open-minded with regard to M&A, and we complement our organic growth with M&A activities,” Baidu CFO Li said in an interview with Bloomberg Television July 25 in Beijing. Baidu has been “investing in potential companies that help us build our core competency as well as to position ourselves in strategically important areas that would drive long-term growth.”
The Beijing-based company agreed to buy app store 91 Wireless in the most expensive acquisition announced by a China-based technology company, according to data compiled by Bloomberg. 91 Wireless distributes apps for Apple iPhones and iPads as well as devices using Google’s Android system in China. The deal came after Baidu’s $370 million purchase of the PPS Internet video business earlier this year.
“The acquisitions are helpful to Internet companies’ growth,” Zero2IPO’s Ni said. “Baidu has to seek a new growth driver to increase its penetration in the sector while Alibaba is also expanding to other areas from just e-commerce.”
Baidu, which dominates in desk computer-based search in China with market share of about 80 percent, has a share of “well above” 50 percent in mobile search, Li said in the interview.
The company reported second-quarter net income of 2.64 billion yuan ($431 million), compared with the 2.6 billion-yuan average of eight analysts’ estimates compiled by Bloomberg. Revenue rose 39 percent to 7.56 billion yuan as advertisers spent more to reach out to mobile users.
Vipshop, a Guangzhou-based retailer of luxury fashion brands, jumped 13 percent last week to a record $42.19 in New York. It has surged 45 percent this month, and is headed for the biggest monthly advance since its initial public offering in March 2012.
The company could be targeted for acquisition by Alibaba, Beijing-based 86Research Ltd. said in a note dated July 23.
“Vipshop would be a perfect candidate given that its valuation is not so high,” according to the report, which said investors should buy the stock due to “near-term earnings upside and attractive valuation relative to its long-term growth potential.”
Sohu, China’s third-biggest web portal, climbed for a fourth straight week, adding 1.9 percent to $70, the highest level since September 2011.
Qihoo, owner of the most-used web browser and the second-biggest search engine, is in initial talks to buy Sogou, Qihoo CFO Alex Xu said in a July 19 interview.
Beijing-based Sohu is scheduled to report second-quarter results today. Adjusted net income may increase 31 percent from a year earlier to $21.5 million, while sales may jump 33 percent, according to the average-estimate of at least four analysts compiled by Bloomberg.
NQ, a mobile security service provider, soared 26 percent last week to a record high of $13.88. NQ’s unit Beijing Feiliu Jiutian Technology Co., a social mobile platform, entered a partnership with Baidu last week, allowing Baidu’s Duoku website to become the exclusive publisher of a mobile game developed by NQ’s unit.
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