Friday, October 22, 2010

Baidu (BIDU) Continues to Execute

I was hoping yesterday's mostly 'non reaction' to earnings would continue this morning for Baidu (BIDU) but I see the stock is marked up nearly 5% in premarket so the chance to get back in after earnings risk is complete at a similar price won't occur.   Therefore, we'll see how the day goes - if the dollar can be crushed today the market should be set to break to new highs (and stay there, unlike yesterday) and BIDU will be in similar position.  The stock peaked intraday at $107.19 on Sep 28th, so based on the premarket print that level should be tested if not beaten and the potential for a breakout is on the table.

I am surprised the stock is acting so well in light of the results - I would have thought a much bigger beat (3 cents on EPS and $4M on revenue) and / or guide up in guidance would be required to keep the party going, especially at this valuation, but people don't seem to care anymore.  On the plus side, Google's losses are Baidu's gains, and the TAC cost improvement is impressive.

In terms of valuation, analysts had a consensus of $1.41 for 2010; this quarter was beat by 3 cents so that takes us to $1.44 with 1 quarter to go.  Assuming they beat next quarter's EPS estimate by say 6 cents, we have a $1.50 EPS for the year... at $107 (premarket) we have a bargain at 71x forward estimates.

Via IBD:

  • China's leading search engine continues to dominate the fast-growing and world's largest Internet market, reporting late Thursday that Q3 profit more than doubled vs. a year earlier. . Its market share has increased as Google (GOOG), the top U.S. search engine and Baidu's chief domestic rival, continues to struggle with China's government over censorship issues.
  • Baidu's earnings swelled 114% to 45 cents per American depositary share. Analysts had expected 42 cents. Revenue jumped 76% to $337.2 million, beating views for $333.2 million.
  • The company ended Q3 with 272,000 advertisers, up 25.9% from a year earlier and 7.1% from Q2. Revenue per customer shot up 41% from a year before.
  • Baidu expects Q4 revenue of $354.2 million-$364.7 million vs. $187.3 million in Q4 2009. Analysts expect $348.5 million.
  • In Q3, Baidu held a 72.9% share of China's growing multibillion-dollar paid search market, says iResearch. Google had 24.6%. Last year, Baidu had a 60% share to Google's 30%.
  • Shares are up more than 147% this year, while Google is down a fraction even after reporting blowout Q3 results.

  • Traffic acquisition cost, or TAC, is an important metric for Baidu, measuring what the company pays partners to generate search traffic. For the latest quarter, TAC totaled $30.2 million, or 8.9% of total revenue. The ratio relative to total revenue declined on a sequential basis from 9.7% in the second quarter and on a year-over-year basis from 15.9% in the same period a year earlier, a trend the company attributed to "faster organic traffic growth."

Long Baidu in fund; no personal position


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