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Is BIDU Worth A Shot Here?

|Includes:Baidu, Inc. (BIDU)

It is quite an interesting time to currently be long BIDU, as I am, the stock has just rebounded off of its 52 week low starting this past week off a little under 84, and closing Friday a little under 91. Right around the 90 area is where a decision needs to be made to either exit or view that this stock will make a run above 100 and stay there. We've had a little bounce, but what should we make of it? The stock recently made a move down to the 80s in December 2012 only to bounce back into the 110 area.

Now, let's look at exactly what you are buying. The easiest comparison in the U.S. would probably be YHOO, BIDU isn't as innovative as GOOG and isn't involved in as many businesses as GOOG is. BIDU is different from YHOO in some ways, since it is still a growing company and YHOO is not. But assuming GOOG will remain the leader in this industry, it would be appropriate to expect BIDU to grow into a YHOO type valuation when it is mature.

Let's take a quick snapshot before factoring in growth

Share Outstanding 1,101,295,000 349,660,000
Market Cap close of 4/12/2013 27,190,973,550 31,686,189,200
Revenue 2012 4,986,560,000 3,580,364,000
EPS 2012 3.28 4.79
Price close of 4/12/2013 24.69 90.62
P/E 7.527439024 18.91858038
MCAP/Rev 5.452851976 8.849991007

Judging by this, Yahoo is clearly cheaper and a more efficient valuation. However, this would be quite a short sighted view, since BIDU is still growing and YHOO has stopped and has predictable revenues now. So let's factor in some growth and see where that takes us. Since BIDU is a growth stock, let's take a look at the more important metric of revenue, thats where most analysts will be looking.

Year BIDU revenues Absolute Value Growth Rate
2012 3,580,364,000 1,276,421,000 55.40159%
2011 2,303,943,000 1,104,689,000 92.11468%
2010 1,199,254,000 547,651,000 84.04673%
2009 651,603,000    

It appears the rate of growth from a percentage standpoint is slowing, however, the absolute value of the growth still appears to be increasing and healthy.

BIDU has been able to grow their revenues a little over 1 billion dollars for the past two years. Let's assume they continue to grow their revenues 1.1 to 1.2 billion dollars every year, how long will it take for this $90.62 stock to have the same MCAP/Rev as YHOO currently does.

It would take a target revenue of about 5.8 billion to get to this ratio which would take them around 2 years given the 1.1 to 1.2 billion dollars of growth in revenues. Now, what does this mean for us, does it mean its cheap, does it mean its expensive? Well, it means nothing and everything at once, it gives us an idea of the numbers we need BIDU to hit to justify this sort of valuation. Keep in mind this is saying that BIDU will grow at this rate for 2 years and then completely stop growing, which is not likely.

I personally am a believer that not only will it be able to hit these revenue numbers over the next 2 years, but that it won't stop growing after that. We're in the middle of a mobile and technological revolution and BIDU is positioned to take advantage of that. Now if the revenue numbers come in even better than this rate, get long and make some money!

Disclosure: I am long BIDU.

Additional disclosure: I am currently long 700 BIDU at 84 and short 1750 CRM at 176.

Stocks: BIDU