Baidu Earnings Preview: First Quarter 2009

Baidu [[BIDU]] is scheduled to report their first quarter 2009 results after the market closes on Monday, April 27. Based on our analysis, we at are expecting BIDU to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $115.8 million and EPS of $.78. This would represent a 41% increase in revenues from last year’s $81.9 million in the same period. The current analyst consensus estimates calls for revenues of $115.3 million and $.74 EPS. On February 18, the company provided first quarter 2009 revenue guidance of RMB780 million ($114 million) to RMB800 million ($117 million) representing 36 – 39% y/y growth.


Last quarters earnings miss broke a string of 12 consecutive quarters where Baidu had beaten Wall Street’s consensus estimates. The company also provided first quarter guidance which was below consensus estimates. However, we believe that management has tried to err on the side of caution and feel that there is a strong likelihood of Baidu delivering better than expected results.


While some customers are clearly scaling back on their advertising spend due to the current economic environment, we still expect the company to post over 40% annual growth. Google’s strong first quarter results also supports the thesis that search advertising is not being affected as severely as other forms of online advertising. Long term, there still remains tremendous growth potential as advertising migrates from offline to online.


Share Performance

Since the beginning of the year, Baidu’s shares have skyrocketed almost 54%. In 2008, Baidu’s shares were hit hard – falling over 66% compared to the 34% drop in the Dow Jones index.



Shares are now trading at 27x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. Baidu’s premium valuation reflects their tremendous growth potential. The stock will likely experience a pullback at some point in 2009, but we would expect the stock to see a nice gain following positive first quarter results.


Recommendation: Buy with a $230 price target.


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