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By: Brendan Gilmartin

Baidu, Inc. (BIDU) is scheduled to report 3Q 2012 earnings after the closing bell on Monday, October 29. The actual results are expected to come through at approximately 4:00 p.m. EST with a conference call slated to follow at 8:00 p.m. Baidu is China's largest search engine and offers an array of additional services, making it among the most trafficked local sites.

Non-GAAP Earnings Per Share (3Q 2012): The current consensus is $1.29, the midpoint of analyst forecasts ($1.23 - $1.34). (Source: Yahoo! Finance)

Revenues (3Q 2012): Baidu previously said it sees 3Q 2012 revenue in the range of $983.0 mln to $1.009 bln. The consensus is at $1.0 bln.

Revenues Guidance (4Q 2012): The current consensus is for revenue to grow 46.3% to $1.03 bln.

Baidu shares are currently trading at around 18.4x forward earnings, resulting in a FWD PEG ratio of just 0.70.

Keep an eye on the following as potential sympathy plays: Sohu.com (SOHU), Sina (SINA), and Qihoo 360 Technology (QIHU).

Recent News

  • 10/09: Credit Suisse downgraded Baidu from Neutral to Underperform and cut the price target from $118 to $83, according to a report on Forbes.com. The firm cited several factors, including the increased adoption of mobile devices, a challenging ad market, and growing competition. The firm also noted Baidu's monopoly in China appears to be waning.
  • 10/02: Raymond James cut Baidu.com from Strong Buy to Outperform and lowered the price target from $165 to $137, based on increased competition in the Chinese search market, according to Forbes.com. Citing a report from Hitwise Experian, Baidu's share of the Chinese search market was 58.3% in mid-September, down from the mid-60s, prior to Qihoo entering the market.
  • 09/26: According to a post on Barron's, ThinkEquity cut the price target on Baidu.com from $180 to $150, based on increasing competition. Qihoo 360 Technology is among the companies threatening to take market share from Baidu. The firm also expects revenues for the 3Q period to come in toward the low end of guidance and offer a conservative outlook for the 4Q. If this scenario pans out, Baidu shares face pretty steep downside risk.
  • 09/13: Citigroup raised concerns about the growing competition Baidu faces from Qihoo 360 Technology, according to Barron's. The firm noted Baidu faces potential market share loss, the impact from mobile expansion, and possible staff losses.


Technical Review

Baidu shares are trading in a relatively narrow 10-point range ahead of the 3Q 2012 earnings release. Should the results surprise to the upside, there is initial resistance at $117.50 - the upper end of the recent trading band, followed by the 200-Day SMA near $125. Conversely, support is at $110, with downside risk to the $105 area, followed by the 52-week low of $99.71. (Chart courtesy of StockCharts.com)

(click to enlarge)

Summary

Baidu shares have come under pressure in recent months, trading 25% below the 52-week high of $154.15 on March 27. The company is facing increased competitive pressure in the Chinese search market, particularly from Qihoo 360 Technology, along with the increased adoption of mobile devices and the challenging ad market. Bulls argue that recent data points to a bottoming near-term in the Chinese economy, while the company maintains a dominant position in the local search market. At 18.4x forward earnings, the Forward PEG ratio is also a mere 0.7, suggesting downside may be limited over the near-term.

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Source: Baidu Earnings In Focus For Monday; Competition, Mobile Threaten Q3 Results