BIDU Baidu.com Earnings Preview

Bidu.com (BIDU) is set to report earnings after the close with analysts expecting EPS of $1.28 on revenues of $134.7 mln. In line results would represent a record for earnings by the co while revenue growth would remain at a healthy 103% y/y. Co guided for revenue in the range of $132-136 mln with most analysts expect the co to come in at the high end of the current range but there are some viable concerns out in the markets.

The biggest worry that investors have is with regards to the growth in the Chinese economy. On Monday, the government announced Q3 GDP had slowed to 9.0%, its slowest pace in five years. On top of those concerns, the hangover effect from the Olympics is expected to provide a headwind on BIDU for the second half of the quarter and into 2009.

These two issues will be discussed in great length on the conference call and any potential weakness in the Q3 report will likely be linked back to them. The slowdown in the Chinese economy will impact the co's outlook so conservative Q4 guidance should be expected. The co has a few metrics that will be worth watching.

1) Active Marketing Customers- Last quarter the figure was 181K which represented a q/q growth of 12% and y/y improvement of 41%. A repeat of this performance will be met favorably by investors as market share penetration is very important for future growth;

2) Revenue per online marketing customer- Came in at $641 last quarter, a 22% q/q and 442% y/y increase;

3) Traffic Acquisition Cost- TAC dropped down last quarter to 12.7% but is expected to move back up to the 13-14% range. A decrease in TAC as a percentage reflects stronger organic growth;

4) Cash & Cash Equivalents- BIDU's balance sheet remains healthy as they have $240 mln of cash on hand. Expectations that co will look to do some acquisitions of private companies to increase it's thumbprint in China are high;

5) eCommerce- This area is expected to be a future growth engine of BIDU so any positive commetary will help shares. Comments regarding a slowdown due to the global economic crisis will provide plenty of headwind for shares;

6) BIDU Japan- Another are expected to provide a boost to BIDU. Given the recent economic reports out of Japan we would expect the boost from this region to be less than expected;

7) Currency Translation- This area is expected to remain a positive for the co as the remninbi is expected to provide a strong conversion for the co. However, given the dollar's funding and safe haven status this is unlikely to provide a big boost this quarter.

The remninbi was relatively steady against the dollar this quarter, trading in a tight range between 6.80-6.90.

Posted: 10/22/2008 2:51:03 PM by Global Administrator | with 0 comments

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