RBC Out Cautious on Baidu: Expect Downside Heading Into Earnings

RBC Capital is out with a cautious piece on Baidu (NASDAQ:BIDU) noting the company reports its 4Q07 after the close, and 1Q08 will be the main focus given recent concerns around the possibility for a conservative outlook due to the 1) change in senior management and 2) recent snowstorms affecting power and access. The firm says they had expected 1Q08 to post a sequentially positive comp given that the company is not executing its way through a ranking algorithm change or a major sales force reorganization like last year, but they believe 1Q08 guidance could call for revenue flat to down 2%-3% sequentially.

They are tweaking their 1Q08 as well as out year estimates given the likelihood for conservative guidance. However, they remain positive on the long-term fundamentals of the company given its dominant share of the search market in China, as well as the secular and macro benefits it continues to enjoy. Maintains Sector Perform.

Notablecalls: Phew, imagine what will happen to BIDU stock in case of conservative (below consensus) guidance. RBC's Q1 revenue estimate used to be at $451 million, yet now it stands at $431 million.

Take First Solar (NASDAQ:FSLR) as an example. The stock got killed yesterday (5-day chart to the right). Was it because of the negative yield rumors? No way! The yield rumors accounted for not more than 5 points of downside. It was because we had Broadpoint out with a call yesterday morning saying there likely wouldn't be much upside to estimates. In this market people tend to sell first and ask questions later.

Well, Broadpoint is looking a bit stupid this morning after nice numbers out of FSLR (stock up close to 15% pre-market). But hey, they kept their Buy rating so it's not that embarrassing.

Still, it shows we're in a shoot-first-ask-questions-later market. Plus, we're gradually getting overbought. Not a nice combo.

Expect at least some early weakness in BIDU following RBC's call.

Comments

[Ajoy:]

Q1 revenue estimate of $431 million? I don't think you
have your numbers right.

2008 Feb 14 12:40 AM