Q3 Preview: China Growth is Boon for Baidu (BIDU); Analysts Bullish
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Baidu, Inc. (Nasdaq: BIDU) is looking solid Thursday after, up over 5 percent heading into its quarterly report.
After the market closes, Baidu is expected to report earnings of 83 cents per share on revenue of $618.60 million. Earnings would be a gain from 72 cents reported last quarter, and 46 cents reported in the year-ago period.
Shares moved 24 percent lower in the quarter, to $106.91 at the end of September. Shares are up about 29 percent since the end of the quarter, and nearly 43 percent for the year.
Investors will most likely be looking for traffic acquisition cost (TAC) numbers, which have shown positive decline since the same quarter last year. TAC fell from 15.3 percent of total revs to 8.9 percent in last years third-quarter. Last quarter, TAC was only 7.9 percent of revs.
Additionally, in mid-August, a CCTV piece revealed that Baidu had limited internal controls and allowed fraudulent advertisers to list TV ads on several programs. Baidu VP Zhan Wang said he formed a team of 800, and requires new advertisers to submit business and ICP information to Baidu for screening. Certain industries, like pharma and aviation, must have government documents submitted as well. Baidu took a little hit following the undercover story, but ended up recovering nicely.
Baidu currently trades for 31.5 times next years expected earnings, compared with 13.7 times at Google (Nasdaq: GOOG), 18.9 times at Yahoo! (Nasdaq: YHOO), and 86.4 times for AOL, Inc. (NYSE: AOL). As of last quarter, Baidu had cash of $4.76 per share and carried a book value of $5.04 per share.
Data from Bloomberg has 30 analysts with a Buy rating on Baidu, 4 at Hold, and none with a Sell. The Street price target average is $187, with a low of $130 and high of $217. Baidu has traded within a range of $94.33 to $165.96 over the last 52-week time frame.
Implied volatility is down from just about 100 at the start of October, to about 72 heading into the report.
Analyst Comments
After the market closes, Baidu is expected to report earnings of 83 cents per share on revenue of $618.60 million. Earnings would be a gain from 72 cents reported last quarter, and 46 cents reported in the year-ago period.
Shares moved 24 percent lower in the quarter, to $106.91 at the end of September. Shares are up about 29 percent since the end of the quarter, and nearly 43 percent for the year.
Investors will most likely be looking for traffic acquisition cost (TAC) numbers, which have shown positive decline since the same quarter last year. TAC fell from 15.3 percent of total revs to 8.9 percent in last years third-quarter. Last quarter, TAC was only 7.9 percent of revs.
Additionally, in mid-August, a CCTV piece revealed that Baidu had limited internal controls and allowed fraudulent advertisers to list TV ads on several programs. Baidu VP Zhan Wang said he formed a team of 800, and requires new advertisers to submit business and ICP information to Baidu for screening. Certain industries, like pharma and aviation, must have government documents submitted as well. Baidu took a little hit following the undercover story, but ended up recovering nicely.
Baidu currently trades for 31.5 times next years expected earnings, compared with 13.7 times at Google (Nasdaq: GOOG), 18.9 times at Yahoo! (Nasdaq: YHOO), and 86.4 times for AOL, Inc. (NYSE: AOL). As of last quarter, Baidu had cash of $4.76 per share and carried a book value of $5.04 per share.
Data from Bloomberg has 30 analysts with a Buy rating on Baidu, 4 at Hold, and none with a Sell. The Street price target average is $187, with a low of $130 and high of $217. Baidu has traded within a range of $94.33 to $165.96 over the last 52-week time frame.
Implied volatility is down from just about 100 at the start of October, to about 72 heading into the report.
Analyst Comments
- JPMorgan is looking for earnings of 77 cents per share and revenue of $624 million. On revenue, JPMorgan comments that the moves were made believing that Baidu slightly tightened its sales process after CCTV reports over the summer. The firm also sees adjusted OPM declining sequentially, from 55 percent to 50 percent, as they expect Baidu increased hiring and hosted Baidu World. Long-term, JPMorgan is modeling for adjusted OPM in the low 50 percent range.
Keys to look for from JPMorgan: "(1) outlook in online ad market, (2) update on SME clients with government increased efforts to grant loans to SMEs, (3) personal homepage usage, and (4) mobile strategy and mobile OS."
- Deutsche Bank sees the CCTV event having limited impact. Deutsche was also bullish on the redesign of Hao123.com, which launched a significant redesign since it debuted in 1999. Deutsche said the move signals "growing Internet activities such as online video, e-Commerce, etc. The new interface better addresses these evolving user needs and interests."
- Collins Stewart is modeling for earnings of 85 cents per share and revenue of $617 million. Collins is also bullish on Baidu issuing a possible beat stemming from search market acceleration in the quarter due to larger ad spending and new non-search initiatives.
The firm notes that data points to China search market acceleration in the quarter, about 78 percent to $858 million. Further, Baidu is said to have sequentially gained 1 point of market share in the quarter, to 78 percent in China.
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