As the pre-market session opened this morning, Baidu ($BIDU) was off more than 4%, hitting $205, before finding some support. This type of move was not just some run-of-the-mill profit taking - there had to be some catalyst for this type of action. And catalyst there was, with one of the bigger contributors to Baidu's ( $BIDU) bottom line finally saying 'we have had enough'.
Anyone who has followed Baidu ( $BIDU) long enough, like I have, has seen the company endure plenty of negative press and possible headwinds to the growth investors have become accustomed to. When the stock was $18 (split-adjusted) it was porn. When the stock was $114 (after the 10-1 split) in 2011, it was the Sino-Forest scam that put a spotlight on all China ADR's. Then it was the FTC's investigation into the Big 4 accounting firms, and the Chinese companies they do work for. Through all that, Baidu ( $BIDU ) has continued to flourish. Heck, they even scared Google ($GOOG, $GOOG) out of China... or did they. China can be alot like playing blackjack, and sometimes it's best to fold your hand and leave the table like Google ($GOOG, $GOOG) did.
With over 70% of the share of search's in China, Baidu ($BIDU) is able to flex it's muscle, and most have paid the company over the years to ensure their product/company is top of mind...but has that time ended? Seems some have had enough.
Yesterday, the Putian (China) Health Industry Federation, declared 'war' on Baidu ($BIDU) and urged it's member to 'stop paid web promotion activities' Their intention is to meet with Baidu ($BIDU) April 4th to resolve the matter, which they hope will lead to lower costs.
If Putian medical department goes to another channel, it could mean a loss of 7% of Baidu's ( $BIDU) revenues, which is a big deal for a growth stock. Couple that news with Baidu's ($BIDU) most recent earnings miss, as well as the possible IPO of Sohu.com's($SOHU) Sougou search engine ,and you have a recipe for possible disaster. It seems like only yesterday Baidu ($BIDU) was slow to transform into the mobile world. Lets hope they are not slow to fix this issue with the Putian (China) Health Industry Federation.
Here is the translated news piece:
Putian Department medical provider Baidu bid to promote discontent, to be collectively stop running
FANG Haiping 2015-03-25 19:53:34Source: NetEase Putian line medical providers Baidu to promote PPC
NetEase contacted Baidu company, as of press time, Baidu has yet to respond.
I currently hold puts on Baidu ($BIDU) and may add or sell them as I see fit over the next few days. Below is the failed breakout chart I see on the stock. Happy Trading!
- JB