Q4 Preview: Baidu (BIDU) Still Above Competitors, But Needs Stronger Mobile Presence

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Baidu.com (Nasdaq: BIDU) shares are outperforming the Nasdaq (up about 1.4 percent) Thursday afternoon heading into the company's fourth-quarter earnings report.

Expected out after the market closes, the Street currently sees Baidu increasing EPS about 75 percent to 91 cents. Revenue should nearly double to $700.8 million. Over the last five earnings reports, Baidu managed to best consensus views by an average of 7.6 percent. The company beat last year's EPS estimate by 15.6 percent, indicating EPS of either 98 cents or $1.05.

Investors will have cross-hairs set on traffic acquisition costs (TAC) as well as overall ad-spending trends.

Shares of Baidu gained 8.9 percent to $116.47 in the quarter and have moved 20 percent higher since the start of 2012. Shares have been in a range of $100.95 to $165.96 over the last year.

Analysts on the Street peg Baidu with an average price target of $191, and estimates ranging from $134.50 to $200. The analyst price target average suggests 37 percent of upside for Biadu.

25 analysts have a Buy rating on Baidu, five at Hold, and none with a Sell.

Analyst Comments

• Goldman Sachs recently issued an update for Baidu following Google (Nasdaq: GOOG) and NHN slowing cost-per-click growth. The firm issued three items key for Baidu:
  1. Rapidly growing Internet traffic in China might pose disruptive risks for Baidu in the medium to long-term, as it has less dominance in the mobile search market compared with desktop searching (34 percent to 84 percent);
     
     
  2. Monetization of mobile search isn't as good as it could be. Goldman said, "We believe mobile search has materially lower CPCs, due to less competition for keywords, different advertiser mix (more local, consumption-related categories versus Baidu’s top-ranked pharmaceutical and machinery for desktop search) and more competition leading to less aggressive monetization."; and
     
     
  3. Goldman data shows smartphone penetration growing from 11 percent in 2011, to 18 percent in 2012, and 25 percent by 2013.
• Brean Murray is looking for EPS of 88 cents in the quarter. Brean mostly points to large ARPU growth from its largest advertisers. One factor to consider is the early Chinese New Year which has many on the Street curbing revenue estimates, but Brean sees this as a general positive for business.
  
  Brean also calls Baidu its top risk-reward pick for China online advertising in 2012, noting robust growth expectations and reasonable valuation.
  
  
• Deutsche banks sees the recent Sohu (Nasdaq: SOHU) warning on first-quarter brand ads is specific to Sohu and not indicative of the broader ad market as a whole.
  
  The firm also commented on "targeting," saying, "We believe one trend that is accelerating within China digital advertising is the shift from brand advertising to more pay-for-performance, targeted platforms such as search and social advertising. As leaders in this field such as Baidu continue to educate both SME’s and large accounts alike, targeted advertising is likely to continue to take share from traditional digital brand ads."
  
  
• Collins Stewart sees EPS of 90 cents and revs of $706 million. Collins expects a report at or below the Street, with first-quarter guidance suggesting flat to negative 2 percent growth.
  
  "China search market grew 5.1% Q/Q in 4Q to 5.68B RMB or $893M, up 70% Y/Y, according to iResearch, a 3rd party research firm. Baidu lost 110bps of marketshare Q/Q in 4Q per iResearch. Triangulating the data, we estimate $681M for Baidu's 4Q revenues, 3% below consensus and 1.5% below the low-end of guidance. We believe there could be a 2%-3% upside due to non-search initiatives such as contextual, travel etc. and some large advertiser spend not being accurately captured by iResearch."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Biadu's past performance at Streetinsider's Biadu's Income Statement.

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