Can India Become Baidu Inc.'s Second Most Important Market?

IMAGE SOURCE: BAIDU.

Baidu is seeking to invest in a handful of Indian e-commerce start-ups as it looks to position itself for years of future growth. The move will help the Chinese search engine giant diversify geographically while also pursuing opportunities in the fast-growing online-to-offline transactions (O2O) space.

Baidu is looking to invest in Zomato, BookMyShow, and BigBasket. These three Indian e-commerce companies have already proved to be successful companies with bright futures, and they should all benefit from the continued development of India. Furthermore, these three companies together cover a broad swath of the most important O2O businesses -- restaurants, groceries, and ticketing.

1. Zomato: restaurantsRestaurant search and review website Zomato was founded in 2008, has expanded into food delivery, and recently added an OpenTable-style table booking service. The company, which is based in India, derives 35% of its revenue from its home country but has made progress outside its borders as well.The company is operationally profitable in five other markets, including Indonesia and the United Arab Emirates, and made a splash when it acquired UrbanSpoon fromYelpfor $52 million in 2015.

2. BookMyShow: movie and event ticketsBookMyShow combines the offerings of a Fandango and a Ticketmaster and does a good job at it. It controls between 85% and 90% of the market share in India and operates in four additional countries. Online ticket sales make up 67% of total revenue, and the overall revenue growth has been spectacular -- up nearly 1,000% from FY 09-10 to FY 14-15. The most exciting aspect for potential investors such as Baidu is that 70% of its bookings are through its mobile site or mobile app. The vast potential in O2O comes in large part from the huge numbers of users who are getting Internet access for the first time, usually through a mobile device. This 70% metric bodes well for BookMyShow's (and Baidu's) future.

3.BigBasket: groceries

BigBasket is an online grocery that currently operates in 18 Indian cities and is looking to add eight more in 2016. The company is targeting $1 billion in revenue in 2017, and that number may appear tiny in just a few years. The food and grocery industry market in India is expected to reach $1 trillion by 2020. Two to three percent of this pie easily gets the online grocery market to the $20 billion size CEO Hari Menon expects in 2020.

As Indian consumers become wealthier and Internet connectivity becomes more prevalent, this percentage should tick higher. Every 1% shift toward online grocery sales adds at least $10 billion to the addressable market for BigBasket. It's easy to see how this company, already the leader in India, could get to $10 billion in sales and beyond over the coming decade.

RUPEES. IMAGE SOURCE: PIXABAY.

India's growth, Baidu's opportunityIndia is the second most populous nation on Earth but has only around 30% Internet penetration. This number is a far cry from the U.S. at 87.4% but also trails China at 49.5% and Brazil at 57.6%. With well over a billion citizens, a 5% to 10% increase in Internet penetration creates tens of millions of new customers who can order food, purchase tickets on their smartphones, and do their weekly grocery shopping online.

The International Monetary Fund projects annual GDP growth of more than 7.5% until 2020. GDP per capita is expected to rise from $1,688 in 2015 to $2,495 in 2020.A huge and growing population paired with rapid GDP growth and increased Internet availability makes India an ideal place to invest for a company with a long-term perspective.

Baidu has been making sizable investments into the Chinese O2Omarket, which CEO Robin Li estimates to grow to$1.13 trillion by 2017. The opportunity in India might not be as large, and Baidu doesn't have the "home court"advantages it has asone of China's largest and most important tech companies, but the investments in these three Indian companies have the potential to transform Baidu'sbusiness in India. The opportunity in China alone makes Baidu a compelling business to own, but India might become its second most important market, and that's something investors should be excited about.

The article Can India Become Baidu Inc.'s Second Most Important Market? originally appeared on Fool.com.

James Sullivan owns shares of Baidu. The Motley Fool owns shares of and recommends Baidu. The Motley Fool recommends Yelp. 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.