Five Reasons to Buy the 'du (Baidu.com)

After reporting stellar earnings on June 23rd (conference call transcript here), Baidu.com (BIDU) should be owned for a variety of reasons, headlined by a little catalyst known as the Olympic Games. I know that management talked down any short term boost from the Olympics but the long term benefits are obvious. August 1st is a solid time to enter this stock as it still is $100 off of it's high. Here are 5 reason to buy the 'du:

1. The Fundamentals. In Q2 Baidu exceeded revenue guidance with 100% year over year growth and 87% net income growth. Management reiterated strong guidance going forward as well. The company saw an increase of 41% in online customers and boosted revenue per customer by 42%.

2. The Launch of My Marketing Center. In the past quarter they launched this new service to aid customers in making better marketing decisions. This customized platform integrates industry information, market trends, as well as business and industry news. A great tool to maintain current clients and to grow market share.

3. Hao123. This is an index of popular Chinese websites that is one of the most used default homepages in China; according to management it's gaining traffic quickly. Many users would rather utilize click through navigation instead of typing in a url address.

4. Formal launch of eBay (EBAY) competitor by the end of the year. Customer to customer buying and selling is just starting to gain traction in China; Baidu plans on being a big part of it.

5. The 2008 Summer Olympic Games. More people will be turning to the Internet than ever before for sport updates, travel, recreation, etc... Management is worried that they will lose some marketing customers who will be forced to shut down operations during the Games but that is just a short term glitch. The big picture in much more important. Baidu will have an Olympic channel, 2008.baidu.com, reporting up to date news and results whose traffic should more than make up for any government imposed shutdown.

August marks the long awaited moment for Baidu to officially replace Research in Motion (RIMM) as one of tech's famed four horsemen. The new RIMM Thunder appears to be an iPhone copy cat but without access to the 'real' Safari mobile Internet, iTunes music, iTunes movies, or the iTunes app store. Getting rid of their one superior feature, the physical keyboard, stands to be the straw that will break the camel's back. RIMM has been a very successful one trick pony, they will continue to have a niche in the business market but the days of high growth are nearing an end. With a probable decrease in growth rate, it's time for Baidu to claim their well deserved spot.

Disclosure: Long BIDU, AAPL.

Comments

[toxxum:]

Your "analysis" reminds me of those back in 2000/01. "A great tool to maintain current clients and to grow market share"??? How? "Many users would rather utilize click through navigation instead of typing in a url address"?? Why? And how does that translate into revenues?

A bit shallow, your analysis, isn't it?

2008 Aug 01 08:17 AM

[Partly Sunny:]

The three month average trading volume of this stock appears to be around 10 percent -- way too high. Could make one think there are a lot more shares outstanding than management is letting us know about.

From Yahoo Finance:
Average Volume (3 month)3: 3,576,850
Average Volume (10 day)3: 3,008,930
Shares Outstanding5: 34.24M
Float: 34.18M

2008 Aug 01 08:37 AM

[Stephen Fra...:]

and was it really necessary to title it "the 'du" if you had to immediately explain it because no one knew what your dumb nickname referred to?

2008 Aug 01 08:57 AM

[grady:]

Based on the wide grin on your face..........I would say that you have made a tidy sum on your Bidu investment............... believe that your reason to own this stock is right on the money............there are more than 100 points to be made between where it is today and where it will be next year at this time.................

2008 Aug 01 10:55 AM

[truthinvesting:]

If some was to go long here (which I don't recommend).They should be selling puts to do as espoused on my free website

2008 Aug 03 09:21 AM

[Shinymountain:]

Can you quantize the obvious long term benefits that you see? What I see from Finance.yahoo.com is that 2009 growth rate is 63%. Even if we assume the same growth rate holds good for 2010 we get EPS of little over $11. China's internet users grow at a rate of 50% today. Today 16% of China's population have internet access. At this rate by 2010, 36% of the population will have access to internet. At that time you cannot expect it to expand at the rate of 50%. Comparable rates with other conuntires will show that you can expect it to grow at 15%. If Baidu grows at twice the rate as the number of internet users, Baidu's growth by 2010 will be 30%. At that time Market may price Baidu at 30 times its PE which will be 11X30 = 330.
Compare with Google's chart. Google's current price is the same as it was in Jan 2006!

2008 Aug 04 12:58 AM

[droopydro:]

eh? You apple lovers, Ha, elderberries maybe... RIMM I predict 180 by octo (give it 31) 2008, bearing the bar, and bareing the split, the chickens waited for the apple to mature on the tree too long, Blackberries are a pernicious foe and will not be dislodged, and they taste better than crabapples, are invasive, and work better, harvest sooner and stain everything it touches. track the bb vs the appl for two years--beat to the punch and more of it too.

2008 Aug 04 05:03 AM

[computersol...:]

Taobao (Alibaba owned) has long sown up the China ebay market.

eBay had a winner with its first product buy of Eachnet, but they killed it totally by not recognizing that the chinese aspects of Eachnet vs eBay were what made it popular.

Alibaba came in late with Taobao, but now have an almost 100% market share of the online chinese "ebay" market.

Baidu has no chance with that. Baidu makes good profit, but at the moment its way overpriced as a share.

2008 Aug 04 09:04 AM

[Trader Tim:]

Ouch, its down 10% since this article. We are in a bear market....you sell the rips and buy the dips until the trend changes. He has it backwards! Yes I like the prospects for Baidu.com but in this market, when a stock goes from $270 to $360 in weeks....you don't tell people to buy lol

2008 Aug 13 12:57 PM