Impact Of CCTV Attack On Baidu

  • Posted by
  • on August 19th, 2011

The CCTV attack seems to be Baidu ($BIDU) specific as opposed to be part of a broader campaign against Chinese Internet firms ($SINA $SOHU $NTES), at least for now.

It appears that CCTV has concluded this round of attacks. Among the risks for Baidu are whether the government investigates and creates new search marketing regulations, and whether advertisers who saw the reports think Baidu has led them to overspend and push back to have their ad spending reduced.

If either of those happen then Baidu may see material revenue and margin damage.

There was a Chinese press report today that the Ministry of Industry and Information Technology may be preparing new online search regulations. CCTV had experts calling for new rules but we should be wary of rumors like this (remember how many times the Chinese press reported a property tax was imminent?)  Given the high profile CCTV coverage I think it would be hard for MIIT to not at least “research the issue”; there is quite a gap however between investigating and creating regulations with teeth.

That said, the CCTV series has increased regulatory risk for Baidu and investors should factor that risk into how they value the stock. And as the Wall Street Journal wrote today in HEARD ON THE STREET: Political Risk for China’s Internet Stocks, investors in all Chinese Internet stocks may want to reconsider the potential regulatory risks.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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