Tuesday, September 11, 2012

BIDU: Bulls See Continued Momentum, Smaller Beats

Shares of search engine Baidu (BIDU) are down $5.80, or 4%, at $136.03 this morning after the company last night beat Q4 estimates and forecast this quarter’s revenue above consensus as well.

No price target increases or ratings changes that I can see this morning. The bulls are largely upbeat that the company reaffirmed their faith in its growth, even if the magnitude of the company’s ability to beat and raise each quarter may be smaller than in past.

Mayuresh Masurekar, Collins Stewart: Reiterates a Buy rating and a $215 price target. The story is changing, he writes. “In 2010-2011, the story was about share gains from Google, search market acceleration on eCommerce and large advertisers, Phoenix Nest and margin expansion. In 2012, the story will be about growing large advertiser spend and contextual ramp, somewhat offset by weakness in some verticals due to a slowing economy, search share stabilization at ~80%, mix shift to lower monetization mobile searches and potential margin contraction from investments in infrastructure and headcount, as well as higher TAC. We believe the days of strong beat-and-raise quarters�??are over – recall that 2Q/3Q beat revenues by 5%-6% and guided 9%-10% higher, while 4Q beat by <1%. That said, 40%+ CAGR China search market growth continues to be a strong long-term driver and stock is trading at 0.6x PEG on 2012, vs. historical average of 0.9x.”

Qi Guo, ThinkEquity: Reiterates a Buy rating and $200 price target. “Baidu reported a strong 4Q with top-line strength mainly driven by solid customer additions, suggesting the company’s SME segment has significantly improved in 4Q11. 1Q12 guidance was ahead of the street’s expectation, implying continued business momentum into 2012, despite a more seasonal Q1 and uncertainties related to the China macro environment.”

George Askew, Stifel Nicolaus: Reiterates a Buy rating and a $190 price target. He’s estimating Q1 revenue toward the high end of Baidu’s guided range of $666.5 million to $688 million, at $682. “We believe that 2012 will be a year of increased investment at Baidu as the company develops new sales associates for underpenetrated verticals, new ad formats and tools which help search engine marketers optimize their budgets and spending.”

Cynthia Meng, Jefferies & Co.: Reiterates a Buy rating and a $200 price target. “The growth outlook is intact as traditional offline and brand advertisers increase spending on search marketing. Baidu remains focused on penetrating SMEs and will continue to invest in R&D, network infrastructure, mobile products and online video in FY12 [�] Baidu will focus on increasing traction in the F&B, cosmetics, auto and business services verticals and hire marketing specialists to help key customers develop online marketing strategies. We expect ARPU increase to be the main driver for topline growth going forward.”

Not everyone’s satisfied, however:

Richard Ji, Morgan Stanley: Reiterates an Equal Weight rating and a $156 price target. “Baidu could still deliver respectable growth, but we expect its earnings growth rate to moderate in 2012 due to the macro overhangs faced by SMEs, higher base and heavier investment [�] Baidu continued its slower pace of customer acquisition as its active paying customer volume rose only 13% YoY, as it has been focusing on a smaller number of large customers while some SME customers have cut their ad spending due to macro overhangs. 2) Baidu expects its 1Q12 sales to climb 72-77% YoY, vs. its sales growth of 83% in 2011. Its 4Q11 earnings growth of 77% YoY, albeit respectable, was the slowest over the past two years.” The company is “searching for a new catalyst,” he thinks, and it might mobile: “In our view, wireless search may emerge as the next growth engine for Baidu. Notably, mobile Internet users tripled over the past three year years to ~70% of total Chinese online population, up from ~40% in 2008.”

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