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  • Baidu Sending Mixed Signals 3 comments
    Apr 25, 2014 10:44 PM | about stocks: BIDU

    I remember it like it was yesterday. I had met this girl and was instantly attracted to her. She was cute and seemed like she would be fun to get to know. One night I was heading over to a friend's house to watch the NBA playoffs and she told me she was planning on going over too. At some point during our text flirting, she told me, "Maybe you can try out your hand-holding skills tonight" - with the winky smiley face and all.

    You better believe I was excited. I was still fairly innocent and holding hands was a big deal to me. The only problem was that she never showed up, signaling to me that she was really wasn't going to be a good prospect at all. The next day, though, she texted me again, wanting to hang out.

    This is a little bit about how I'm feeling about Baidu right now. The company is surging right now on the back of a 59% increase in revenues and a 24% increase in net profit from this time last year. Pretty exciting, right? They're sending you all the signals.

    But then CFO Jennifer Li makes it awkward when she reports that the company expects no absolute profit growth this year as they are ramping up sales and marketing expenses, especially in promoting their mobile services. What the heck are we supposed to do now? Analysts showed their enthusiasm by slashing their profit growth estimates for the year from 31% down to 5%. Just like that girl went from being a 10 in my book to a 3. We can have a good time, just don't mess with my head.

    In the end, though, she told me the only reason she didn't show up was because she chickened out. I ended up hanging out with her again. And then we dated for a few months, after which she ripped my heart out and made me watch her feed it to the neighbor's dog--OK that's probably where our little analogy ends...

    Let's just say that it's not surprising that investors are confused right now about what to do with Baidu. However, its magnetic pull will eventually overcome them in the end. After all, maybe Baidu is just being conservative. They'd rather under-promise and over-deliver than do the opposite.

    Let's just hope that aggressive spending pays off and we have something more exciting to look forward to next year.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: BIDU
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Comments (3)
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  • James Sands
    , contributor
    Comments (1924) | Send Message
     
    My reaction as a shareholder of Baidu was great that they beat. I'm finding that quite a few Chinese companies provide very conservative estimates, SouFun Holdings being a company that provided guidance of around 22-25% revenue growth for 2013 and actually generated 48% revenue growth. Then guided again 22-25% growth for 2014.

     

    Notice that Jennifer did not give any bottom-line guidance for Q2 in 2014, initially, but when questioned reiterated the same guidance.

     

    Baidu's profit margin decreased significantly YOY from 34% to 25% so there was an impact. The top-line just grew so much driving earnings to beat. 2014 Q1 increased to 59% as compared to 2103 Q1 42% on a YOY basis.

     

    As long as the company can return significant growth, a declining margin is not looking so bad. I think Baidu is going to get a lot of return from iQiyi and Noumi on the revenue sides too long-term.

     

    Thanks,
    James
    26 Apr, 07:36 PM Reply Like
  • Anyoption
    , contributor
    Comments (223) | Send Message
     
    Author’s reply » Thanks for your thoughts. I do agree with you. I guess it's like that girlfriend of mine who was afraid of getting my hopes up, right? ;) But yes, I do believe Baidu will provide solid growth in the long-term. I'm just afraid that too much aggressive spending for too long will turn investors off. But I guess Amazon's gotten away with that for years now...
    30 Apr, 01:54 PM Reply Like
  • James Sands
    , contributor
    Comments (1924) | Send Message
     
    Yea, I try to stay away from the "out-of-whack" multiple stocks. I've learned some from shorts on this one. As long as Baidu maintains a profit margin in the 18-25% range long-term, there is opportunity to get 10% or better annual stock appreciation from today's levels.

     

    Thanks,
    James
    30 Apr, 03:24 PM Reply Like
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