Is Baidu Seeing a Google Effect?

Baidu.com (NASDAQ: BIDU) is the leading Chinese language internet search engine. According to iResearch, Baidu has 72% share of the Chinese language web search market, and according to comScore, it is the third most popular search engine.

Last month, on Feb 13, Baidu announced its Q4 2007 and fiscal 2007 results. Its Q4 revenues of $78.3 million exceeded market expectations of $77.2 million. Sequentially the revenue was 18% higher ($66.4 million in Q3), and 110% higher y-o-y (Q4 2006 revenue was $35.7 million).

For the year, its revenue of $239 million, represented a gain of 123% over the previous year's revenues of $107 million, and beat market expectations of $232 million.

The company's online marketing revenue grew to $78.1 million, and was 111.2% higher than the previous year.

Its revenue growth is a direct function of the number of active online marketing customers and revenue per customer. Baidu’s active online marketing customers increased by 8.4% sequentially, and 43.5% over the previous year by reaching more than 155,000. The revenue per online marketing customer of $507.2 represented an increase of 5.7% sequentially, and 48% over the previous year.

Online marketing revenues for the year 2007 rose by 110% over the previous year to reach $238.7 million. The number of active online marketing customers rose by 50% over the previous year to cross 214,000 for the year, and revenue per online marketing customer increased to $1,110.4, representing an increase of 39.7% from the previous year.

The company's EPS of $0.92 was substantially higher than market expectations of $0.75 for the quarter. Similarly, for the year 2007, its EPS of $2.64 beat market views of $2.42.

For the coming quarter, the company expects to see a decrease in its quarterly revenues. The revenue outlook of $73.1 to $75.1 million is in line with the market view of $74.4 million for Q1 2008. The drop in the revenue has been attributed to the Chinese New Year holiday season, and the severe snowstorms in the region.

To gain a wider market share, Baidu has recently launched a Japanese search engine. In addition, it is currently building its own C2C online auction platform which will begin to generate revenues for the company in the upcoming fiscal year 2008.

Despite the good results posted by Baidu, its share price did not show significant upward movement. Having closed at $261.90 the day before the results, the stock price reached a high of $280.44 in the following trading session, but closed at $264.50. Since then, the share price has been constantly slipping – be it marginally – and is currently trading at $250.32 with a market capitalization of $8.4 billion.

I wonder if Baidu’s stock is getting punished because of Google’s downward stock momentum.

click to enlarge

Comments

[Vikram]

In a bear market, investors will look at things like valuations. It would be prudent to compare the P/Es and PEGs of Google and Baidu at this point.

[fjd10595]

They are both overpriced, there is your answer.

[User 86999]

In fact, they're both waaaaay overpriced!

[User 86999]

Buying BIDU at any price more than 170 is a waste of money. I'm looking forward to that price in a few months.

[fodi MD.]

When you look at a stock like BIDU you have to price in the future with PEG