After showing relative strength on Monday when many expected the Chinese internet search provider to acquire a stake in UCWeb, shares of Baidu.com continue to slide falling 2.64% during today’s trading. The stake in UCWeb would help Baidu extend its pull in the Chinese mobile market because UCWeb developed a mobile Internet browser that is currently installed on 300 million cell phones. Baidu would use the technology to capture a powerful position in the emerging mobile search market.
Baidu made a bid of $400 million for 49% which was significantly cheaper than the valuation set at approximately $1 billion, and the deal is now in limbo. This led to growing concerns that the price tag is simply too high for Baidu and the deal therefore has a higher percentage of completely falling through. After the failed offering, Baidu’s shares lost .6% on Tuesday and tacked on an additional 3.5% yesterday.
According to Scott Redler’s commentary today, Baidu is a stock to avoid at this stage. It is still in its bear flag with a base expected to form between $125 and $112.
There is, however, a fair amount of upside if UCWeb and Baidu can reach a deal. The tech giant also reached a deal with Apple that put its search engine for iPhones in China which will become another strong asset as the iPhone continues to grow in China.
The questions will continue to loom, and until there is any resolution, the stock is one to avoid as it will trade on headlines and reports, rather than technicals.
By Evan Myer