Let's Give Baidu.com Some Credit


A Baidu (NAS: BIDU) bear is growing horns.

Credit Suisse -- which previously had an "underperform" rating on the Chinese search engine -- raised its outlook on Baidu to "neutral" on Friday.

Analyst Wallace Cheung is also bumping his price target on the shares from $122 to $135 in the move, at a time when many are wondering if the latest unflattering expose on the government-run China Central Television will hurt its credibility.

Cheung isn't concerned. He points out that the accusations -- alleging click fraud and a ranking system that is being gamed -- aired on CCTV2, and not the more widely watched CCTV1.

To that end, Cheung's "Baidu Price Index" -- his proprietary gauge of median ad rates for hundreds of top keywords across several categories -- is pointing toward healthy improvement in the month ahead. In other words, Baidu's scandal isn't scaring away sponsors from bidding higher for leads through the country's largest search engine.

The Credit Suisse analyst is also throwing out a conspiracy theory into the mix, suggesting that the expose may be sheer jealousy on CCTV's part, since he sees Baidu overtaking CCTV to be the country's largest media company in terms of ad dollars in two years. Cheung's conclusion -- beyond the upgrade -- is that he's jacking up next year's revenue target.

It isn't easy being a search engine. Just ask Google (NAS: GOOG) , which last week agreed to pay $500 million in settling a case over ads for illegal imports from online Canadian pharmacies in this country.

If the "do no evil" company crosses the line, what chance do the other global juggernauts have?

How accountable is the medium for the message? Can broadcasters be taken down for ad claims on television and radio? Can a search engine be taken down simply for being too good at what it does?

Yahoo! (NAS: YHOO) , Baidu, and Sohu.com (NAS: SOHU) have come under litigious fire over the years simply because their web-scouring ways can find unauthorized MP3 files on third-party sites.

This isn't the first knock on Baidu. It won't be the last. However, seeing how well Baidu has performed since the more scintillating CCTV expose three years ago is encouraging.

Let the haters hate. By the end of the day, advertisers flock to where the leads are -- and, right now, that's Baidu in China.

If you want to see how China's dot-com darling emerges from this roller-coaster ride, addBaidu to My Watchlist to track its latest developments on Fool.com.

At the time thisarticle was published The Motley Fool owns shares of Yahoo! and Google. Motley Fool newsletter services have recommended buying shares of Yahoo!, Baidu.com, Google, and Sohu.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz has only been to China once, but he relishes admiring its dot-com revolution from afar. He does not own shares in any of the stocks in this article. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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