China's Internet presence is growing and several companies are well positioned to reap the rewards. Baidu.com Inc. (NDAQ: BIDU) and Sohu.com Inc. (NDAQ: SOHU) are two portal operators that stand to benefit the most as China's online adult population now stands at 221 million, which puts them on par with the United States. However, great potential remains with just 16% of China's population online, compared to 71% of the United States population.
Baidu is the largest Chinese search provider that many investors are calling China's version of Google. The tech giant recently announced a sharp increase in earnings as sales from its online marketing division continue to soar ahead of the Olympics in Beijing. Baidu also continues to dominate the market with a 60.1% marketshare compared to Google's 25.9% and Yahoo's 9.6% respective marketshares.
Baidu reported a 71.5% increase in its first quarter profits during a quarter that is traditionally quiet for online advertising. Analysts, however, were attracted by the 44% growth in active online-marketing customers combined with a better-than-expected forecast for the upcoming quarter. Analysts had been predicting $101 million for the second quarter sales, but the company guided to $114.1 million.
Sohu is a leading Internet media company that is a it more diversified in focus than Baidu. The media company provides visitors with a daily source of information, entertainment and communication through its various subsidiaries. These include a search engine, media destination, alumni club, games information portal, real estate portal, wireless service provider, online mapping provider, and two massively-multiplayer online role-playing games.
Sohu shares rose Monday amid a sharp rise in first-quarter profits thanks to strong brand advertising and online game revenue. Brand advertising rose 40.9% due to a continued shift from offline to online advertising, along with strength in spending building up to the 2008 Olympic Games. Notably, Sohu.com is also the official portal for the upcoming Beijing Olympics. Finally, the media company also provided better-than-expected guidance.
In the end, both Baidu and Sohu stand to benefit from the online boom in China. Currently, only 16% of the Chinese population is online and the number is quickly growing. These two leading portals represent the two largest online plays in China that investors are watching carefully, especially during the increased advertising spend ahead of the Olympic Games.
Shares of Sohu are up $7.83, or 12.66%, to $69.67.
Shares of Baidu are down $4.39, or 1.21%, to $359.30.
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