This Week's Volatile Earnings Preview: BIDU, FSLR, CMG, PCLN

This new year is the Year of the Rat. On Friday, my father reminded me of the story of the rat and how it became the first animal of the sequence of the calender animals and it is pretty hilarious. The story goes like this, the Jade Emperor wanted to choose 12 animal names as the sequence of the calender. He announced that he would hold an animal racing to determine the order.

Once the race started, the wily, intelligent rat jumped on the horns of the Ox who was barreling away. The savvy, crafty rat knew that there was a river ahead before the finish line and used the Ox to his advantage by staying on his horns. The rat was one of the worst swimmers. As the Ox climbed out of the river, the rat jumped off of his horns and dashed to the finish line for first place! The pig well she got hungry during the race and stopped to feast and sleep before continuing and finished last (sounds just like Sasha right now sheesh!). The cat finished in 13th place and was not included in the calender because the rat pushed her off of the Ox while crossing the river!

As we look towards the Year of the Rat, all traders and investors should look for ways of becoming wily like the Rat, to successfully navigate the treacherous waters of the market. As a trader, I analyze the funadmentals, technicals and sentiment data of the markets I watch and seek high probability plays while trying to be as creative as possible in generating new ideas. I guess some don’t care about that as much and it is so interesting to me to see how investor psychology adapts to changing times and circumstances especially in China and Asian cultures where they are very superstitious with thier money. I do believe in self fulfilling prophecies but don’t believe in these superstitions but always try to analyze myself as well as others, to find out what others will do with their money, before they do it.

Bodacious BIDU
BIDU reports after the bell Wednesday Feb. 13th 2008. Consensus estimates are for $0.71 eps for the quarter with $0.64 eps for next quarter and $76.88 million in revenues. High estimates are for $0.82 eps and revenues of $82.62 million in revenues. BIDU has beaten 3 out of the last 4 quarters and expectations are for another solid beat this quarter. BIDU is sitting on the low price target of $235 and has a high price target of $480. Here are the recent developments and analysts notes.

Canaccord Adams initiated a sell rating on the shares on Jan. 29th with a $265 target. They believed that the shares were very expensive and said the expansion into Japan is not a given. Cramer is bullish on BIDU lately.

GOOG is now set to enter the free music download scene in China with licensings something BIDU actually doesn’t do as they pirate music. TechCruch says that much of the success of BIDU is based on them providing pirated free music downloads to its users. Estimates say that Chinese users visit and download music daily from the BIDU service. GOOG’s new service is expected to launch in several weeks. According to the WSJ, BIDU seems undaunted saying, “”We’ve been the No. 1 Web site in China for a number of years, and in fact we are the largest Web site outside of the U.S.,” says Robin Li, a Baidu co-founder and CEO. “When people get to know about the Internet, the first Web site they learn is about Baidu in China.” Google is not talking, but if they are successful now, they may cookie cutter their plan in other countries. For now, Google is mired in second place. In the fourth quarter, they had 26% of China’s estimated $132M in search-engine revenue, compared to Baidu’s 60.1%, according Analysys International, a Beijing research firm. Now at the same time this type of piracy has not gone unnoticed by the recording industry and they have sued BIDU, SOHU and YHOO China by Sony BMG Music (SNE), Universal Music and Warner Music Hong Kong. While Sohu’s Sogou is being sued by Gold Label Entertainment.

On Feb. 4th, Goldman Sachs said that a MSFT & YHOO combination could be a negative fro BIDU as BIDU provides search monetization for MSFT in China. The firm said MSFT will likely moves towards Alibaba for these services if a deal goes through.

Now that YHOO has rejected MSFT’s offer today it looks like it is a moot point.

On Jan 25th, Piper said they expect in line revenue of $76.5M and EPS upside of 3 cents- 7 cents, of which 2-4 cents is related to the BIDU Japan launch shift. The firm expects in line March guidance despite some investors believe that the company may not give guidance. They kept their Buy rating.

On Jan. 23rd, Merrill Lynch started coverage with a Buy and a $430 price target.

On Jan. 22nd, Citigroup downgraded BIDU to a hold on valuation concerns that the US slowdown would spill over into the Chinese economy.

On Jan 11, CEO Robin Li told reporters he believes BIDU could take 10% of the Japanese market once it enters.

On Jan 17th, BIDU received approval from China Internet Network Information Center to become a domain name registrar on December 2007, according to zunmi.com. This could lead to a new revenue stream for BIDU helping diversify it a bit.

The other explosive stocks to watch for this week with earnings are FSLR on the 13th, PCLN on the 14th, and CMG on the 14th.

All 4 stocks are expected to be volatile.

Disclosure: None

Comments

[starr]

Interesting article... send more

[DanielJacome]

CMG - 14% in after hrs. Good buying op - 40x is "not" that expensive for a firm with 60%+ EPS growth and an ability to raise prices in a recessionary scenario.

They can raise prices 1.5-3% (making your buritto cost 14c more - so what) and keep margins flat. If they raise prices more than that and exploit more labor efficiencies, margins @ the rest level will expand MORE.

Stock is a mean buy @ 75-80. Hope for a selloff and watch new capital rush in. 5x return in 12 mths for CMG is a lot, but the long term story is still intact.....