Investors Run To Baidu (BIDU) As Google Threatens to Leave Huge China Market

Shares of Chinese search engine Baidu.com (Nasdaq: BIDU) are soaring this morning on news Google (Nasdaq: GOOG), its biggest competitor in the massively growing Chinese Internet search market, could be leaving after a security breach.

Google said it will stop censoring results after attacks on the gmail accounts of Chinese human rights activists. The company will talk to the Chinese government on a way they could operate as an unfiltered search engine, but it may ultimately mean shutting down Google.cn and offices in China.

Before the market opens, shares of Baidu are up 16 percent to $450 per share.

Analysts at Piper Jaffray only believes there is 35% probability Google will cease operation in China, but said if they do it would add roughly 30-40% to Baidu's total revenue in 2010.

Deutsche Bank said the news immediately benefits Baidu.com under almost all scenarios. The firm upgraded shares of Baidu to Buy this morning following the news and citing valuation.

UBS was by far the most aggressive; upgrading shares to Buy and raising their price target from $380 to $523. Quite simply, UBS said Baidu would benefit the most from Google's departure as the two have a duopoly in China accounting for 90 percent of the revenue and 95 percent traffic market share. UBS said even if Google can successfully solve the problem and continue in China, Baidu will still benefit incrementally from advertisers' concerns over spending on Google.cn.

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