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Why Did Baidu Break $100?

Tickers in this article: GOOG AAPL BIDU QIHU
NEW YORK ( TheStreet) -- On Tuesday afternoon, Baidu (BIDU) broke below $100 for the first time since January 2011.

The big question is why?

On the surface, Baidu is as strong and as dominant in Chinese search as it always has been. Baidu has over 80% market share in their home market. That's higher than Google (GOOG) has.

And we know that China still has a chance to double the number of people online over the next several years.

So what gives?

I think there are two big reasons for the Fall swoon in Baidu's share price.

First, there is Qihoo 360 (QIHU) . Qihoo is a much smaller player in search in China compared to Baidu, yet, it's starting from a small base for its growth. Baidu still has a $35 billion market capitalization as a company. Qihoo's market cap is $2.75 billion.

Over the summer, Qihoo and others started to target Baidu. Qihoo CEO, Zhou Hongyi, has made it his goal to break Baidu's search monopoly. Most U.S. investors think of Qihoo as a browser company and therefore not as someone worth the same kind of multiple as Baidu. Yet they have 272 million monthly users. On their last earnings call, Zhou said: "If we can convert a sizable portion of these users to our search products, that will become . . . a very major market player in this area."

Wall Street seems to believe him. In the last three months, Qihoo's shares are up 38% while Baidu's shares are down 24%.

The second reason why Baidu's shares have been under attack is related to the rapid shift from PC users to mobile users. Just as with Google in the United States, the move makes an average search query far less profitable for Baidu compared to the good old desktop days.

How will they deal with this shift? They're doing the best they can, just as Google is. Baidu is trying to make their mobile search product the best on the market. They've also signed agreements with partners like Apple (AAPL) to provide the search behind Siri queries in China.

Up until now, Google has countered the mobile shift criticism by pointing out that the number of paid clicks they receive has been continuing to go up. Therefore, this is a sign that people are searching even more in a mobile world compared to a desktop only world. That's a good thing for them and they will eventually figure out how to monetize better the new mobile world.

This same logic applies to Baidu. However, Baidu has never seen its stock price slowed down yet by the shift to mobile.

Since the March 9, 2009 bottom, Baidu's shares are up 535% vs. 114% for Google's. And over the last two years, Baidu's shares had stayed above Google's shares until August of this year.