Baidu on Track to Beat Q3 Guidance

As an internet seach engine, Baidu's (BIDU) earnings and stock price are highly dependent on its traffic. According to my monitoring, Baidu's traffic surged 33.5% quarter-over-quarter (Q/Q) during this summer (see table below).

This data point supports my opinion that Baidu is on track to outperform its guidance of 15%-18% Q/Q revenue growth in 3Q09. Baidu's strong traffic this summer was mainly driven by search queries in five categories/industries: Online Games, Education & Training, Finance, Travel, IT & Consumer Electronics. Below is my analysis on each category:

Online Games category enjoyed a 42.5% Q/Q increase in search volume mainly due to strong seasonality in the summer, when students are in holidays and have more time to play throughout the day. The biggest winners in this category included Perfect World's (PWRD) Fantasy Zhu Xian (+2408% Q/Q), Tencent's (TCEHF.PK) Hero Island (+1689% Q/Q), and Kingsoft's JX III (+342% Q/Q).

Education & Training category saw search queries grow 37.4% Q/Q mainly due to students and parents anxiously searching for information on the annual National College Entrance Examination (Gao Kao). Searches related to scores and admissions surged 3593% and 1459% Q/Q, respectively.

Finance category enjoyed a 37.1% Q/Q growth in search volume, as Chinese investors eagerly searched for solutions to the large fluctuations in the A-share market: Shanghai Composite Index surged 30% in June and July, and then plunged 22% in August. Top traffic gainers included Everbright (Guangda) Securities (+154% Q/Q), mutual funds (+144% Q/Q), and Huaxia Fund Management Co. (+120% Q/Q).

Travel category saw search volume grow 32.8% Q/Q mainly driven by strong seasonality during the summer. Another factor is the cancellation of May 1st long holiday since 2008, which has caused people to shift some travel activities to the summer. Top gainers in this category included "Dalian Travel" (+183% Q/Q), "Air Ticket Booking" (+155% Q/Q), and "Qingdao Hotels" (+100% Q/Q).

IT & Consumer Electronics category enjoyed a 23.8% Q/Q increase in search queries, thanks to the annual busy season in the summer and aggressive promotions launched by manufacturers and stores. Top winners in this category included "Cell Phone Price Quotes" (+177% Q/Q), "Nokia Cell Phones" (+82% Q/Q), and "Lenovo Notebooks" (+63% Q/Q).

Disclosure: No positions

Comments

[D.H.:]

Before you buy Baidu you should read up on all the allegations of big time copyright fraud via their MP3 channel and encylcopedia. Most major record lables in China are suing them saying damages could be in the billions. Wikipedia is a charity and they would never blame Baidu of being their largest copyright violator if there wasnt a reason. PLEASE at least read the first study.

‘China’s nonstop music machine’ - Comprehensive 6-Month Forensic Study Slams Baidu, Implicates Management in Assisting in Massive Copyright Infringement
www.theregister.co.uk/.../

Baidu faces potential multi-billion dollar liability for breaching music copyrights
www.ifpi.org/content/s...

Recording Industry steps up campaign against internet piracy in China
www.ifpi.org/content/s...

The Dark Truth About China’s Baidu
www.music2dot0.com/arc...

Being the Change: The Ethics of Baidu
siliconhutong.typepad....

Baidu May Be Worst Wikipedia Copyright Violator
Wikipedia foundation says China's popular Baidu search engine does not respect copyright; its rivals agree.
abcnews.go.com/Technol...

Sep 03 11:30 AM

[mikemichaelson:]

D.H. - Let me guess - you're short BIDU?

Sep 03 02:44 PM