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Baidu: Solid Q3 Driven By Mobile Revenue And Operating Margin
- Chinese search engine provider Baidu reported solid 3Q14 results.
- The sustained rise of mobile revenue contribution and narrower margin fluctuation were the two brightest spots in the earnings report.
- I estimate a fair value of $267 per share for Baidu shares, implying about 10% upside from current levels.
Baidu Q3 2014 Earnings Preview
- I expect Baidu's total revenues to grow 54.5% year-over-year to RMB13.738 billion in Q3 2014, near the high-end of management guidance and above Wall Street consensus of RMB13.55 billion.
- I expect Baidu to report a net income of RMB3.971 billion and fully diluted EPS of RMB11.30 in 3Q '14, representing a 31% year-over-year growth.
- Mobile Revenue Contribution and Mobile Cost-Per-Click (CPC) are the two key operating metrics for investors to watch.
YY: Q2 Earnings Review
- Chinese online social platform YY Inc. (NASDAQ:YY) reported strong 2Q14 results on August 6.
- YY's top-line outperformance in the quarter was primarily driven by its online music and entertainment business.
- In addition to strong revenue growth, YY achieved significant margin expansion in the quarter thanks to strong operating leverage.
- Looking ahead, management noted online game broadcasting and online dating as two new growth drivers.
- I estimate a fair value of $107.45 per share for YY's stock, and believe investors should buy YY's stock at current levels.
Ctrip: Q2 Earnings Review
- Ctrip reported mixed 2Q14 results: revenue beat both consensus and guidance, while EPS fell sharply year-over-year.
- The 2Q revenue beat was primarily driven by strong growth in the company's two largest business segments: accommodation reservation and transportation ticketing.
- The decrease in net income was largely due to non-GAAP operating margin declining 13 percentage points to 12% in 2Q14 from 25% in 2Q13.
- I believe investors should wait on the sidelines for Ctrip's stock.
Sohu: Q2 Earnings Review
- Sohu.com reported mixed 2Q14 results on July 28: revenue missed Wall Street consensus, while EPS beat the consensus.
- Investor focus has now shifted to Sohu's Sogou unit because of its impressive revenue growth and consecutive profitability.
- Although Sogou's growth was impressive in 2Q14, the guided companywide net loss for Q3 and management's comments during the earnings call indicate that Sohu as a whole is still in spending mode.
- I believe investors should wait on the sidelines for Sohu's stock.
Changyou Q2 Earnings Review
- Changyou reported mixed 2Q14 results on July 28. Revenues missed consensus due to weakness in TLBB, while earnings beat on scaling back expenses.
- Changyou guided negative net income for 3Q14. The company's recent investment in mobile browser developer MoboTap confirms that it is still in a spending mode in search of future growth.
- I believe investors should wait on the sidelines for Changyou's stock.
A Preview Of Changyou's Q2 '14 Earnings Report
- I expect Changyou to report total revenues of $189 million and a net loss of $23.6 million and EPS of -$0.45 for 2Q '14.
- Investors should focus on Changyou's game platform when the company reports 2Q '14 results. A clear plan to significantly increase platform-related revenues will boost investors' confidence.
- Flagship game TLBB received an expansion pack in Q1. Updates on this expansion pack will indicate whether TLBB is still a stable source of cash flow for Changyou.
What To Look For In Baidu's Q2 2014 Earnings Report
- Mobile search is the most important area for investors to watch. The most important operating metric in this area is daily active mobile search users.
- Profit margins are the second most important area. It will be a positive sign for Baidu's stock if net margin in Q2 '14 comes in higher than 23.8%.
- Baidu's Consumer Products business is the third most important area deserving investors' attention. This emerging business line includes games, music, online literature and social.
Key Things To Watch In Baidu's Q1 '14 Earnings Report
- Mobile search is now Baidu's strategic focus. Investors should pay special attention to updated metrics on mobile revenue contribution and user base of Baidu's mobile apps.
- Baidu's 2014 guidance implies net margin will shrink by 10.6 percentage points this year. Q1 '14 profit margins should be compared with Q1 '13 numbers to evaluate whether Baidu outperforms this guidance.
- Investors should also look for updates on location-based services, consumer products, and international operations.
What Can We Learn From Weibo's Updated IPO Prospectus?
- Weibo has selected NASDAQ as the stock exchange to list its shares and picked "WB" as its ticker symbol.
- Weibo has selected Ms. Bonnie Yi Zhang as its Chief Financial Officer.
- Weibo expects sequential decline in revenues and a net loss in 1Q14.
- The updated prospectus added exceptions to the non-competition agreement between Weibo and SINA.
What Can We Learn From Baidu's Latest 20-F Filing
- Baidu's number of paid clicks grew 32.7% year-over-year.
- Sales and marketing headcount recorded the biggest annual growth in six years.
- Baidu plans to add five more data centers in 2014.
An Analysis Of Sina Weibo's IPO Prospectus
- Sina Weibo is an Internet marketing platform in China that uses its users' social content and social interest to generate revenues and income from online advertising customers.
- Weibo’s innovative usage of “feed” helps differentiate it from other social networking services.
- Weibo has clealy identified the mobile platform as its strategic focus. The next wave of Weibo’s user growth will primarily come from moblie handset users in China’s second-and-third-tier cities.
Is Weixin A Competitor Of Sina Weibo?
- Sina Weibo clearly does not view Weixin as a direct competitor. In Weibo's 137K-word IPO prospectus, Weixin was only mentioned once.
- This "Social Media vs. Social Network" theory clearly defined Weibo's target market in a sophisticated way. It will alleviate many investors' concerns over whether Weibo can defend its own territory.
- Weixin does compete with Weibo on certain occasions. The battle between Weibo and Weixin continues after the IPO, where both services (apps) compete fiercely to stay on users' smartphone screens.
Did Tencent Just Let Sina Dunk Over Its Head?
- As Sina's social media subsidiary Sina Weibo marches toward its $500 million IPO, it has just acquired the most important new user in its history - Tencent.
- Tencent's usage of Sina Weibo highlights Weibo's core value and provides fuel for its IPO engine, reminding me of Dwight Howard letting Nate Robinson dunk over his head in 2009.
- For any institutional investor having a hard time understanding Sina Weibo's value, Tencent's campaign serves as a vivid and convincing endorsement.
- Tencent's move also shows strong self-confidence and implies an ambitious vision, foreshadowing fierce competition in China's social networking industry.
- While enjoying the short-term publicity boost provided by Tencent, Sina Weibo should understand that its top priority is to avoid being marginalized by Weixin.
- China Internet Stocks: December Review
- China Internet Stocks: November Review
- China Internet Stocks: October Review
- Baidu: 3 Focal Points For Q3 Earnings
- Baidu: History Shows Investors Should Be Cautious Ahead Of 3Q11 Earnings
- China Internet Stocks: September Review
- Sina: Shares Attractive In The Short-Term
- New Game XT To Sustain Giant's Growth In Q4
- A Performance Review Of China Internet Stocks For August
- How China Internet Stocks Performed in July
- Where Baidu Is Heading After 2Q11
- Baidu: History Shows Investors Should Be Optimistic About Q2 Earnings
- Baidu: 2Q11 Earnings Preview
- A Performance Review of China Internet Stocks for June
- Sina: Investors Should Be Cautiously Optimistic
- A Performance Review of China Internet Stocks for May
- A Performance Review of China Internet Stocks for April
- Baidu: What to Watch for in Wednesday's 1st-Q Earnings Release