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Baidu slides as Qihoo tactics questioned

SAN FRANCISCO (MarketWatch) -- Baidu Inc. shares fell Wednesday after one analyst questioned whether recent tactics in the Chinese search giant's war against Qihoo 360 Technology Co. could backfire.

On Wednesday, Baidu (BIDU) U.S.-traded shares fell 6% to $113.34 while U.S.-traded shares of Qihoo (QIHU) rose 2.9% to $22.18.

On Tuesday, Baidu, which accounts for more than 80% of search traffic in China, started redirecting search traffic coming from the much-smaller Qihoo to its own home page.

Investors responded by driving Baidu's shares 3% higher and Qihoo's 6% lower Tuesday, adding to a three-session streak where Baidu shares gained 4.8% and Qihoo shares shed 9%.

That trend changed Wednesday after Stifel Nicolaus analyst George Askew said the tactic could backfire on Baidu, and another analyst reduced her price target on the Chinese search giant.

Wednesday's action is more in line with Baidu's and Qihoo's respective share movements since Aug. 16, when Qihoo, known for its Internet security products, launched its 360 Comprehensive Search engine.

The search engine, which replaced Google Inc.'s (GOOG) Google China search on Qihoo browsers, allows users to choose from 13 different search categories and results from 15 search engines.

Since Aug. 16, Qihoo shares are up nearly 19% and Baidu's are down about 15%.

As of Tuesday, when Qihoo users select Baidu as the search engine, rather than returning a result, the engine redirects the user to Baidu's home page, where the user has to fill in the search terms again, according to Stifel's Askew and media reports.

"By doing this, we believe Baidu is expecting that users will identify Qihoo with a poor search experience, and bypass Qihoo completely and begin searches at Baidu," Askew said in a note. "However, the risk is that Qihoo users simply select a different search engine within the search category, and avoid Baidu."

In response, Qihoo replaced Baidu as the default search engine for the search categories of News, Maps, and MP3s, according to the analyst.

Askew, which expects the battles between Baidu and Qihoo to get even nastier, has a buy rating on Qihoo with a target price of $31.

Also on Wednesday, Barclays analyst Alicia Yap cut her 12-month price target on Baidu to $153 from $189 while maintaining her overweight rating on the stock.

Yap estimates conservatively that Qihoo could dent Baidu's traffic share by about 6% and its revenue by about 2% in 2013.