Baidu stays lofty in the face of mobile growth
Although mobile has been strong, Baidu shares are near resistance, and that is a red flag.
By Neal Rau, Stock Traders Daily
Baidu Inc (BIDU) shares were down about 13% in 2012, as competitors like Qihoo 360 Technology Co Ltd (QIHU), and Alibaba moved in on its Internet search traffic. A huge factor was Baidu’s inability to monetize searches on mobile devices.
The mobile numbers were disappointing, as the fastest traffic growth for Internet related companies comes from smartphones and tablets. However, this year the stock is up 37% YTD and mobile is looking more promising. Is the stock still a buy?
The stock’s biggest move has come in the second half of this year, as Baidu’s shares have surged 58% since July 1. During the month of July, Baidu announced plans to buy 91 Wireless, which made the company the largest mobile game and app distributor in China. Investors saw this acquisition as a move closer to gaining traction in the growth oriented mobile arena.
Later in July, Baidu reported second quarter earnings of $1.22 per share, which was better than expected, while revenues rose 43.6% year over year to $1.23 billion, which also topped expectations. The company issued guidance for the third quarter with revenues of $1.422-1.460 billion, which was also ahead of expectations. Perhaps the most important figure, and why the stock has gone up so fast, was that more than 10% of Baidu’s revenue came from mobile devices.
Shares of companies like Facebook Inc (FB) and Groupon (GRPN) have also seen huge runs after impressing investors with encouraging mobile revenues. Facebook shares are up 67% since July largely because its earnings report then showed mobile revenues at 41% of total sales, up from 30% the previous quarter. Baidu shares have made a big run over the last 3 months, and according to the Stock Traders Daily live trading report, are close to a test of long-term resistance.
Baidu has long been China's dominant search engine. However, its mobile platform has been weak at a time when China has become the world's largest market for smartphones. Chinese mobile internet users totaled 464 million in June 2013, up 19% year over year. Baidu has been spending money to acquire companies that will help drive mobile revenue, and it appears to be paying off.
Baidu’s recent acquisitions will strengthen its market position in key mobile products, and its mobile platform in a fast growing and an increasingly competitive Chinese mobile internet market. Baidu paid $306 million in 2011 for a majority stake in the travel-booking service Qunar, to tap the country’s growing travel market. Qunar expects to double sales this year to about $163 million, helped by an expanding middle class and rising use of its mobile application.
After a disappointing 2012, Baidu is starting to gain traction in mobile. However, it will be a challenge to continue improving monetization of its mobile platform, and innovate to stay ahead of competitors But BIDU shares are close to long-term resistance, and that is the real red flag because price is all we care about when it comes to making money from the stock.
If the stock tests resistance, as is identified in the real time Trading Report offered by Stock Traders Daily, sell signals will surface -- but what's more so will short signals, with a downside target of support. Risk controls must be recognized, also defined in the report, but the main takeaway is that tests of resistance constitute a sell signal, and not a buy signal for Baidu shares, no matter what happens to mobile revenues.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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