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Another quarter, another strong performance for Baidu (BIDU). After the market closed, the company reported total revenues of $1.453 billion, a 42.3 percent jump - following Google's lead. Net income reached 8.92 billion yuan or $498 million compared to 2.64 billion yuan ($431 million) last quarter. The stock was trading sharply higher (+6 percent in after-hours).

Baidu's stock has been held down by negative sentiment for Chinese equities - as an example, iShares China ETF (FXI) is down close to 4 percent in 2013. But after gaining close to 28 percent in the last three months, the question is whether the market has already discounted the good news, and whether investors should take money of the table.

The answer depends on the investment horizon of each investor. Short-term investors may want to take some money off the table. Long-term investors may want to stay with the stock, as the company continues to take strategic initiatives to strengthen its competitive position in the Chinese online market. In late July, the Baidu acquired app maker 91 Wireless for $1.9 billion. This move will allow Baidu to expand the scale and scope of its operation, adding 3 percent, according to Citigroup's analyst Muzhi Li.

With 560 million Internet users spending 20 hours a week online, China is by far the largest Internet market of the world, more than twice the size of the U.S. market. The trouble, however, is that the Internet market is a brutal market, where most companies fail to monetize their business model. But there is an exception to this rule: Early movers that have amassed economies of scale and scope, as is Baidu that has managed to maintain steady profit margins-see tables below.

Financials of Chinese web companies in late April 2013:

Company

Business

Forward P/E (Dec. 2014

Operating Margins

Baidu, Inc.

Internet search engine

24.74

43.11 (%)

Sina Corp. (SINA)

Media and mobile value-added services

40.19

-3.25

E-Commerce China Dangdang Inc. (DANG)

Business -to-Consumer e-Commerce

--

-7.25

Renren Inc. (RENN)

Social Networking

--

-56.88

Sohu.com Inc.

Brand advertising, on-line gaming

22.85

21.95

Source: Yahoo Finance

Financials of Chinese web companies in early October 2013:

Company

Business

Forward P/E (Dec. 2014

Operating Margins

Baidu, Inc.

Internet search engine

19.82

44.02 (%)

Sina Corp.

Media and mobile value-added services

36.19

22.30

E-Commerce China Dangdang Inc.

Business -to-Consumer e-Commerce

--

-9.42

Renren Inc.

Social Networking

--

-52.09

Youku (YOKU)

Internet TV

15.62

-25.02

Sohu.com Inc.

Brand advertising, on-line gaming

14.82

23.15

Source: Yahoo Finance

Baidu's revenues have been growing by leaps and bounds; reaching $3.83B in 2013. Most notably, revenues come from several sources: Internet search; video stream (iQiyi); on-line travel services (Qunar); on-line recruitment (Baijob); and on-line payment systems (BaiduPai).

Simply put, Baidu is the Google, the Netflix (NFLX), the LinkedIn (LNKD), the Priceline.com (PCLN), and the eBay (EBAY) of China; and is trading at favorable financials, compared to both its US and Chinese peers-see tables below.

Financials of U.S. web companies

Company

Total Revenues

Forward P/E

Operating Margins

Google

$57.39B

19.43

24.51%

Netflix

4.14

77.95

4.0

LinkedIn

1.24

109

5.18

Priceline.com

5.88

21.44

34.71

eBay

15.52

16.52

20.06

Source: Yahoo Finance

A few words of caution: As is the case with other private companies in China, Baidu's business is at the whim of a government that can change the rules of the game at any time, turning winners into losers. Baidu's financials should be interpreted with caution, as Chinese accounting standards are different from those of the U.S. - so they aren't necessarily comparable with those of their U.S. counterparts.

Source: Baidu Takes Page From Google With Strong Earnings Report