Baidu: staying mobile - FT.com Big dogs have to deal with little ones snapping at their heels. Welcome to the world of Baidu, China's biggest internet search company. As search becomes more about browsing on the move using a mobile phone and less about sitting at a desktop, Baidu is facing the pain of new, smaller rivals. The latest is Qihoo 360. Qihoo has a 10th of the $38bn market capitalisation of Baidu but it is a savvy software company. It has attracted web traffic through its mobile applications and antivirus software, and started to monetise its search function this year. While Qihoo holds just 3 per cent of China's internet advertising market, compared with Baidu's 30 per cent, its share is growing. This creates more problems for Baidu's margins - note the guidance in Monday's fourth-quarter results. First, mobile now makes up a third of Baidu's search traffic yet contributes just a 10th of search revenue, estimates Maxim, a research company. Competition could force Baidu to drop ad prices and pay more to attract users. Traffic-acquisition costs have been ticking up to almost a 10th of revenues. It also leaves Baidu spending more to acquire smaller rivals to protect its traffic. It recently bought iQiyi, a video site. The good news is that much of the bad news looks priced in. Baidu's share price has fallen almost a fifth in the past year compared with a 2 per cent fall for other big US-listed Chinese companies. That has left it trading on 19 times forward earnings - a two-fifths discount to its five-year average. It is also a 10th premium to Google, on 17 times, yet Baidu's earnings are still growing at more than twice the pace of Google's. What is more, China's internet usage as a total of the population and ad spend as a total of economic output are still half the levels of the US. Baidu remains the Chinese tech stock worth getting one's teeth into.