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China's online search market ready to boom on more ads
By Vey Sern Ling |
October 29, 2012, Monday
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Print Edition
Print Edition
WE are structurally bullish on China's online search market.
We forecast a 25 percent compound annual growth rate for revenue of the online search market in 2012-17, driven by increasing online advertising spending and a structural shift to performance-based search advertising.
We believe the search market is resilient to a macroeconomic slowdown in China due to the under-penetration of small and medium enterprises, which remain less exposed to online advertising.
Amind the competitive environment, Baidu and Qihoo can co-exist. We believe Baidu's dominant market position in personal-computer online search in China is not at risk as it should maintain a material lead on search quality.
Having said that, Qihoo 360 Technology's (Qihoo) large browser market share will likely be an important factor for its success.
We think the overall search market in China is growing sufficiently for Qihoo to co-exist as a credible operator. We think Sohu.com's Sogou and Tencent's Soso could lose out eventually.
An opportunity
The mobile search sector is an opportunity instead of a threat.
Although mobile search monetization is still at a nascent stage in China, we believe mobile search traffic is incremental to PC search traffic instead of cannibalistic. First, there is limited overlap between PC and mobile search keywords. Second, providers of mobile search serve users on the move, allowing them to search more than they could before mobile Internet access became prevalent.
We have Buy ratings for Baidu and Qihoo, and a Neutral rating for Sohu.
With its dominant position, we believe Baidu is the key beneficiary of secular search market growth.
Qihoo's new search business could lead to near-term margin pressure, but we are positive on its long-term growth, and expect search monetization to begin as early as the fourth quarter of this year.
Meanwhile, we think Sohu's search market share could come under pressure with Qihoo's entry into the market.
We think Qihoo's search business could create downward pressure on the market prices of keywords in the long term. Meanwhile, Sogou might face higher commissions for ad agencies as well as higher traffic acquisition costs.
Thus, we expect Sogou's revenue market share to remain at its current level (around 4 percent) over the next three years, with possible downside if competition from Qihoo intensifies further.
The article was adapted from a UBS Research report dated October 19. The opinions expressed are his own.
We forecast a 25 percent compound annual growth rate for revenue of the online search market in 2012-17, driven by increasing online advertising spending and a structural shift to performance-based search advertising.
We believe the search market is resilient to a macroeconomic slowdown in China due to the under-penetration of small and medium enterprises, which remain less exposed to online advertising.
Amind the competitive environment, Baidu and Qihoo can co-exist. We believe Baidu's dominant market position in personal-computer online search in China is not at risk as it should maintain a material lead on search quality.
Having said that, Qihoo 360 Technology's (Qihoo) large browser market share will likely be an important factor for its success.
We think the overall search market in China is growing sufficiently for Qihoo to co-exist as a credible operator. We think Sohu.com's Sogou and Tencent's Soso could lose out eventually.
An opportunity
The mobile search sector is an opportunity instead of a threat.
Although mobile search monetization is still at a nascent stage in China, we believe mobile search traffic is incremental to PC search traffic instead of cannibalistic. First, there is limited overlap between PC and mobile search keywords. Second, providers of mobile search serve users on the move, allowing them to search more than they could before mobile Internet access became prevalent.
We have Buy ratings for Baidu and Qihoo, and a Neutral rating for Sohu.
With its dominant position, we believe Baidu is the key beneficiary of secular search market growth.
Qihoo's new search business could lead to near-term margin pressure, but we are positive on its long-term growth, and expect search monetization to begin as early as the fourth quarter of this year.
Meanwhile, we think Sohu's search market share could come under pressure with Qihoo's entry into the market.
We think Qihoo's search business could create downward pressure on the market prices of keywords in the long term. Meanwhile, Sogou might face higher commissions for ad agencies as well as higher traffic acquisition costs.
Thus, we expect Sogou's revenue market share to remain at its current level (around 4 percent) over the next three years, with possible downside if competition from Qihoo intensifies further.
The article was adapted from a UBS Research report dated October 19. The opinions expressed are his own.
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