Credit Suisse Worries Baidu Could Be Hit By China Internet Crackdown

| About: Baidu, Inc. (BIDU)
This article is now exclusive for PRO subscribers.

Baidu (NASDAQ:BIDU) took a one-day whacking last Thursday after an analyst at J.P. Morgan trimmed his estimates on the company for the September quarter. Monday, Credit Suisse analyst Wallace Cheung weighs in on Baidu, and notes similar concerns.

The issue is this: China has reportedly been engaging in a crackdown on any sites with potentially controversial political material on the Web ahead of the country’s Communist Party Congress, an event held every five years, the latest version of which begins Monday. An Associated Press story Monday provides some alarming details:

In the lead-up to the sensitive Communist Party Congress, which convenes Monday to approve top leaders who will serve under President Hu Jintao through 2012, authorities have been casting an even wider net than usual in their search for Web content they deem to be politically threatening or potentially destabilizing.

“What you see now is unprecedented,” said Xiao Qiang, director of the China Internet Project at the University of California, Berkeley. “They are forcing most of the interactive sites to simply close down and have unplugged Internet data centers. These are things they haven’t done before.”

The Council on Foreign Relations notes
on its site Monday that China has shut down more than 18,000 web sites.

That’s important to Baidu because of the company’s Baidu Union operation, which sells ads on third-party sites. Cheung Monday estimates that due to the crackdown on many sites, the company’s revenue growth in the fourth quarter will be less than expected. He sees sequential growth of 8%, rather than the consensus view of 15%.

Cheung has an Underperform rating on the stock; Monday he raised his price target to $143 from $109, to reflect higher earnings forecasts for 2008 and 2009. Note that his new price target is still less than half the current level.