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Is Baidu Seeing a Google Effect?

Posted on Wednesday, Mar 12th 2008

Baidu.com (NASDAQ: BIDU) is the leading Chinese language internet search engine. According to iResearch, Baidu has 72% share of the Chinese language web search market and is the third most popular search engine according to comScore.

Last month, on Feb 13, Baidu announced their Q4 2007 and fiscal 2007 results. Its Q4 revenues of $78.3 million exceeded market expectations of $77.2 million. Sequentially the revenue was 18% higher ($66.4 million in Q3) and 110% higher y-o-y (Q4 2006 revenue was $35.7 million).

For the year, their revenue of $239 Million, represented a gain of 123% over the previous year revenues of $107 Million, and beat market expectations of $232 million.

Their online marketing revenue grew to $78.1 million and was 111.2% higher than the previous year.

Their revenue growth is a direct function of the number of active online marketing customers and revenue per customer. Baidu’s active online marketing customers increased by 8.4% sequentially and 43.5% over the previous year by reaching more than 155,000. The revenue per online marketing customer of $507.2 represented an increase of 5.7% sequentially and 48% over the previous year.

Online marketing revenues for the year 2007 rose by 110% over the previous year to reach $238.7 million. The number of active online marketing customers rose by 50% over the previous year to cross 214,000 for the year and revenue per online marketing customer increased to $1,110.4, representing an increase of 39.7% from the previous year.

Their EPS of $0.92 was substantially higher than market expectations of $0.75 for the quarter. Similarly, for the year 2007, their EPS of $2.64 beat market views of $2.42.

For the coming quarter, they expect a fall in their quarterly revenues. The revenue outlook of $73.1 to $75.1 million is in line with market view of $74.4 million for Q1 2008. The drop in the revenue has been attributed to the Chinese New Year holiday season and the severe snow storms in the region.

To gain a wider market share, Baidu has recently launched a Japanese search engine as well. In addition, they are currently building their own C2C online auction platform which will begin to generate revenues for them in the upcoming fiscal year 2008.

Despite the good results posted by Baidu, its share price did not show significant upward movement. Having closed the day before the results at $261.90, the stock price reached a high of $280.44 in the following trading session, but closed at $264.50. Since then, the share has been constantly slipping – be it marginally – and is currently trading at $250.32 with a market capitalization of $8.4 Billion.

I wonder if Baidu’s stock is getting punished because of Google’s downward stock momentum.

BAIDU chart

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there is no reason to have 109 multiple with bad news ahead. Worse yet, there is no insider transactions shown on yahoo. Are insider shares still locked up or they do not want to share that info? Do they have the same falseclick problem as Google? Will see…

thejones Wednesday, March 12, 2008 at 6:28 AM PT

No, insider shares are not look up, and there
was a trade – Li Yanhong transferred part of
a joint stake solely to his wife, which means it
can now be sold with no notification.

I think the real reason the stock stayed down was
because there was nothing in the guidance to
push it up. The stock didn’t fall much either, since
their long-term potential is still intact. In short,
it is mostly the status quo, with the broader
market driving it.

Ajoy Wednesday, March 12, 2008 at 8:55 AM PT

“look up” -> “locked up”

Ajoy Wednesday, March 12, 2008 at 8:56 AM PT

Yes it is really amazing how Baidu is giving tough competition to the Internet behemoth Google in China. That too is been a long time that Google is facing this stiff opposition.

Nitin @ My 2dimes

Nitin Rao Wednesday, March 12, 2008 at 10:36 AM PT

I think, language and culture are HUGE barriers to entry, and China has both issues in plenty, that US companies are struggling with.

India, in many ways, is simpler because the language issue is not as problematic.

Sramana Mitra Wednesday, March 12, 2008 at 4:32 PM PT

I’m surprised that the article did not even mention that Baidu is getting heavily sued by not only the IFPI in February but now local Chinese organizations have also had enough of Baidu’s dubious practices and have sued too: https://www.forbes.com/markets/2008/02/28/china-baidu-piracy-markets-equity-cx_0228markets1.html

Even more damning are revelations in the Chinese press that suggest that Baidu’s music search which is their traffic goldmine probably has more than just a cosy relationship with suspicious and mysterious sites hosting music files. And that, makes discussions about EPS, revenue etc moot as we are taking illegal/ fraud territory…
https://www.chinadaily.com.cn/bw/2008-03/10/content_6521101.htm
Is Baidu even a search engine anymore?

aletheia Friday, March 14, 2008 at 11:17 PM PT