Earnings Preview : Baidu Inc. (NASDAQ : BIDU) First Quarter 2010
Monday, April 26, 2022 9:41 AM

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Baidu Inc. is scheduled to report its Q1 2010 results when the market closes on April 28, 2010. The company expects total revenues to range from Rmb1.2bn (US$176mn) to Rmb1.235bn (US$181mn). Such sales guidance points to 48% to 52% YoY growth (vs up 40% in 4Q09), implying sales reaccelerating. If Google were to withdraw from China, Baidu's market share for its core paid search business should increase, as Baidu and Google are combining for over 90% of the market while other players (e.g. Sohu, Alibaba / Yahoo!, NetEase, Tencent, Taobao, and Microsoft's Bing) share the remainder of the market. If assumed that Baidu captures 70-80% of Google's paid search revenues, Baidu would see 35-40% sales and earnings upside in 2010.  

Baidu.com is the leading Chinese language search engine. Baidu''s mission is to provide the best way for people to find information online, including Chinese language web pages, news, images and multimedia files though links provided on our website. In addition to serving individual Internet search users, they also provide an effective platform for businesses to reach potential customers online. Their online marketing services include auction-based P4P and tailored solutions. They believe we were the first auction-based P4P service provider in China.  
As for Q4 2009, Baidu Inc.'s total gross revenues dipped 1% QoQ but surged 40% YoY to US$184.7mn (Rmb1,261mn), exceeding the company's guidance (US$174mn- US$180mn). Sales of its online marketing services accounted for nearly 100% of total revenues. Baidu's active online marketing customers increased 13% YoY to 223,000, with an average spending per customer of ~Rmb5,700 (US$828), up 24% YoY. Gross margin was 69%, vs 70% in 3Q09 and 67% in 4Q08. Operating profit was US$67.7mn (Rmb462mn), down 11% QoQ but expanded 52% YoY, with an operating margin of 39% (vs 44% in 3Q09 and 36% in 4Q08). Net profit was US$62.7mn (Rmb428mn), down 13% QoQ but up 48% YoY. Excluding share-based compensation, Baidu's net profit expanded 44% YoY to US$65.4mn (Rmb447mn). Its fully diluted earnings per ADS dropped 13% QoQ but climbed 48% YoY to US$1.80 (Rmb12.27). Non-GAAP fully diluted EPS was US$1.88 (Rmb12.80), vs US$2.16 in 3Q09 and US$1.31 in 4Q08.

Analysts' estimates for Q1 2010 range from a low of $1.42 to a high of $1.86, compared to a consensus estimate of $1.60, with number of estimates being 13 and the co-efficient variance being 8.44. Total revenues are expected to roll in at 1,319 (RmbMM), with the total cost of revenues being 389 (RmbMM), resulting in a gross profit of 750 (RmbMM) and an operating profit of 385 (RmbMM). Total operating costs and expenses are expected to reach as much as 754 (RmbMM). Finally, net income is likely to amount to 344 (RmbMM) and Income per ADS - Basic (RMB) and Income per ADS - Basic, Pro forma (RMB) is expected to touch 9.92 (RmbMM). Income per ADS – Diluted and Income per ADS - Diluted, Pro forma should amount to 9 .87 (RmbMM).On January 27, 2022 Baidu announced its intentions to jointly invest US$50 million with Rakuten, Inc., the largest e-commerce website in Japan, over three years in a joint venture to build a B2B2C online shopping mall for Chinese Internet users. On February 26, 2010, the company announced its agreement with Providence Equity Partners ("Providence") pursuant to which the latter will invest $50 million in Baidu's new online video company to develop an advertising supported online video business providing premium licensed content in China. Baidu will continue to maintain majority ownership in the company.

The stock closed at $645.76, up 0.89% on April 23, 2010. Most analysts' recommend this stock as a relative Overweight with an average price target of $635.00. Baidu enjoys superior pricing power vs Internet peers in China, driven by its dominant market share (over 60% of total search traffic) and its keyword bidding model. Baidu's online community initiatives (Post Bar and knowledge-based search) may expedite its customer acquisition via the snowball effect.


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