Chinese Internet search bellwether Baidu (NASDAQ:BIDU) will report 2Q11 earnings on July 25 after the market closes. My research has revealed some interesting historical patterns related to Baidu's Q2 earnings. Based on these patterns, I believe investors should be optimistic on Baidu shares ahead of the 2Q11 earnings release.
First, Baidu has reported Q2 earnings six times since its IPO. For four out of these six quarters, Baidu shares rose on the next trading day following Q2 earnings releases (green columns in Chart 1), representing a 67% winning percentage. Furthermore, this winning percentage has improved to 100% from 2007-10. By comparison, for 15 out of Baidu's total 24 quarterly reports, Baidu shares rose on the trading day following the releases, representing a 63% winning percentage (Chart 1). Historically, Q2 has been Baidu's third best quarter in terms of next-day performance (Table 1), with an average price change of 2.2% on the day following Q2 earnings releases.
Second, Baidu has issued Q2 revenue guidance five times since its IPO. For all these five quarters, Baidu's actual revenue beat the midpoint of guidance range (green columns in Chart 2), representing a 100% winning percentage. By comparison, for 22 out of Baidu's total 23 quarterly guidances, the actual revenue beat guidance midpoint, representing a 96% winning percentage (Chart 2). Overall, Baidu has historically beat guidance midpoint by 3.9% on average. Breaking down by quarters, Baidu has on average beat guidance midpoint by 5.3% in Q1 reports, 3.5% in Q2, 2.8% in Q3, and 3.8% in Q4. This shows Q2 has been the third best quarter in a year in terms of the magnitude of the beat (Table 1).
These patterns show that historically it has been a good idea to buy Baidu shares ahead of Q2 earnings releases, although Q1 and Q4 have been better buying opportunities. It is certainly possible for Baidu's 2Q11 results to surprise the market on the downside. However, statistically, it makes sense to take a positive stance before Baidu reports 2Q11 earnings.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.