Monday, April 27, 2009

Baidu.com (BIDU) Beats & Provides Nice Top Line Guidance

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After some serious issues surrounding the "purity" of their search results last November [Nov 18, 2008: Not a Good Week for Chinese Dot Coms] (boy, that seems ages ago) and the associated after affects [Dec 11, 2008: Baidu.com - Lowers Guidance, Stock is Up] it appears all is well on mothership Baidu.com (BIDU). Now before I go into the earnings data, I will say growth has slowed down quite a bit here (even with the increased guidance) - and investors are bidding Baidu.com up at 40x forward estimates for 2009. Not that valuation has mattered much in this market....

Analysts were looking at $116M in revenue with $0.76 as consensus EPS; in the "earnings game" the "beat and raise" is the all important technique and Baidu came through. Earnings at $0.86 on $118M in revenue (41% growth year over year); revenue for the next quarter is guided higher than analysts expectations and no talk of an EPS figure. The stock is up about 3.5% after hours as I write this - I've sold most of my position here after this 100% type of run off the lows but growth mutual funds seem happy to keep bidding it up at any price. There is a lot more value in some less followed names in the general "Chinese internet" space but Baidu.com of course has a singular strangehold on search.

I will say it is quite interesting how this business, in it's early life all things being relative is already subject so seasonality far above what Google (GOOG) faced even at a more mature stage. How much is pure seasonality (Chinese New Year) and how much is due to the adjustments they had to make after their "oopsie" in November - impossible to tell.
  • Baidu had more than 185,000 active online marketing customers in the first quarter of 2009, representing a 14.9% increase from the corresponding period in 2008 and a 6.1% decrease from the previous quarter.
  • Revenue per online marketing customer for the first quarter was approximately RMB4,400 ($644), a 22.2% increase from the corresponding period in 2008 and a decrease of 4.3% from the previous quarter. The sequential decreases were primarily due to the usual seasonality associated with the Chinese New Year, a weaker economy, and the carry-over effect of the actions Baidu took near the end of 2008 to improve the quality of its customer base.
They do enjoy a very nice tax rate...
  • The effective tax rate for the first quarter of 2009 was 12.9% as compared to 6.9% for the corresponding period in 2008. The increase in effective tax rate was primarily due to the expiration or lapsing of tax holidays previously enjoyed by some Baidu entities.

Full report here.

Via WSJ
  • The company, which holds a commanding share of the Internet-search market in China, had warned earlier this year that its online marketing customers might scale back on spending and said the removal of some sponsored links in the fourth quarter would also impact the first quarter. Baidu faced pressure to more clearly differentiate paid from unpaid search results.
  • "Despite the typical seasonality associated with the Chinese New Year holiday and overall macro economic challenges, we were able to deliver strong results by focusing on executing initiatives that drove overall performance," said Chief Executive Robin Li.
  • Deutsche Bank late last month initiated its coverage of the company with a buy investment rating, saying Baidu's traffic volume and ad sentiment was rebounding and noting the company had absorbed the worst of the global slowdown's effects.
Long Baidu.com in fund; no personal position

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