Baidu drops after excellent quarter

The company saw revenue grow by nearly 83%. So why did investors punish the stock Friday?

By Jim J. Jubak Feb 17, 2012 5:36PM
Shares of Chinese search engine company Baidu (BIDU) closed Friday down 3.5%, or $4.93 a share, after the company reported great fourth-quarter results Thursday. 

Earnings of 95 cents a share were 5 cents a share above the Wall Street consensus. (Baidu is a member of my Jubak Picks 50 long-term portfolio.)

Revenue grew by 82.6% from the fourth quarter of 2010 as the company saw a 13% increase in its base of active advertisers to 311,000 and a 62% increase in the average ad spend per customer.

The company also managed to keep a tight lid on costs, with the costs of acquiring traffic flat with the fourth quarter of 2010. The cost of traffic acquisition remained below historical levels as Baidu's careful screening of traffic from its partner sites cut down on traffic "waste." The company did increase spending on research and development for mobile search -- mobile searches now account for 15% of all searches on Baidu, the company says -- and on its content verticals in online video and online travel services. With investments in bandwidth to support higher traffic, the company actually saw operating margins collapse by 0.6 percentage points to 51.4%.

It was a great quarter and the selling Friday is really nothing more than profit taking.

There certainly wasn't anything to get disappointed about in the guidance. For the first quarter of 2012, Baidu expects revenue to grow by 75% year over year. That compares to an 88.3% increase in the first quarter of 2011 but the drop is mostly (almost totally?) a result of the shift in the timing of the Lunar New Year. The company’s projections see revenue in the first quarter of $666.5 to $688 million versus the Wall Street consensus of $670.1 million.

That kind of growth makes this a less expensive stock than it seems with shares trading at 28 times forecast 2012 earnings per share.

Once the profit taking is over, I think you can expect Baidu to challenge its 52-week high of $166 by June or July.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Baidu as of the end of December. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

Tags: BIDU
Feb 17, 2012 7:16PM
Friday profit taking?  Naw, that never happens.  Guess we will have to see what the weekend brings for news before jump on board of the up swing .. or out the window.
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