Baidu Inc. (NASDAQ: BIDU) – Q1 FY 2011 Earnings Preview
Thursday, April 21, 2011 2:12 PM

The number one Chinese language services provider, Baidu Inc. (NASDAQ: BIDU) is scheduled to report its first quarter FY 2011 earnings on April 25. In fiscal 2010, Baidu's reported EPS exceeded analysts' consensus estimates by margins in the range of 7.10 percent to 33.30 percent.

The company conducts the bulk of its operations through Baidu Online Network Technology Co, it also runs operations through Baidu Netcom Science Technology Co. Baidu Netcom Science Technology holds the licenses that Baidu needs to operate their websites and provide their online services. With its operations based out of China, Baidu faces risks resulting from domestic government policy. Government regulation of web content remains a threat to Baidu's operations, and the threat of a government reprimand looms large if Baidu fails to meet censorship standards.

In the last quarter ended December 2010, Baidu reported total revenue of RMB, the Chinese currency, 2.451 billion, or $371.3 million, representing a 94.4 percent increase compared with revenue of $1.26 billion or $192 million. Net income in the fourth quarter of 2010 was RMB1.161 billion or $175.9 million, a 171.3 percent increase from the corresponding period in 2009. Diluted earnings per ADS for the fourth quarter of 2010 was RMB3.32 ($0.50); diluted ADS excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2010 was RMB3.40 ($0.52).

For full year 2010, total revenue was RMB7.915 billion or $1.19 billion, up 78 percent compared with revenue of RMB4.447 billion or $680 million in FY 2009. Net income in fiscal year 2010 was RMB3.525 billion ($534.1 million), a 137.4 percent increase from 2009. Diluted earnings per ADS for fiscal year 2010 were RMB10.10 ($1.53); diluted ADS excluding share-based compensation expenses (non-GAAP) for fiscal year 2010 was RMB10.36 ($1.57). Costs and expenses related to Baidu's Japan operations for fiscal year 2010 were RMB182.4 million ($27.6 million), which reduced diluted earnings per ADS by RMB0.49 ($0.07).

In Late December 2008, company entered into a structured share repurchase transaction, under which it made an upfront cash payment of $10 million in exchange for the right to receive either a number of its ADSs or a cash settlement amount upon the expiration of the three-month term of the transaction. The company did not repurchase any of its ADS's in the open market during 2010.

In its regular update, Baidu released its first quarter FY 2011 outlook. Baidu currently expects to generate total revenues in an amount ranging from RMB2.380 billion ($360.6 million) to RMB2.450 billion ($371.2 million) for the first quarter of 2011, representing an 83.9 percent to 89.3 percent year-over-year increase.

Since Baidu Inc. is predominantly based in China and competes with its Chinese counterpart, the competition that Baidu faces is also from the Chinese companies. Baidu competes with companies like Sina Corp. (NASDAQ: SINA) and Inc. (Nasdaq: SOHU). In the trailing 12 months period, Sina Corp. reported a loss of $0.31 per share on revenues of $402.6 million. reported EPS of $3.62 per share on revenues of $612.7 million. On the other hand, Baidu reported EPS of $1.55 per share on total revenues of $1.21 billion.

Baidu has a total market capitalization of $50.84 billion. In comparison with the industry, Baidu has a P/E ratio of 94.31, much higher compared with the industry's average P/E of 23.27. . The P/B and P/S ratio of the company is 39.73 and 41.93, respectively, compared with the industry's P/B and P/S ratio of 5.20 and 1.90, respectively. The net profit margin of the company is 47.35 percent, much higher than the industry's average margin of 22.80 percent. The ROE of the company is 53.58 percent, much higher than that of the industry's ROE of 14.40 percent. The quarterly revenue growth of Baidu is 94.40 percent, compared with the industry's growth of 19.80 percent.

For the first quarter, analysts' EPS estimates range from a low of $0.40 to a high of  $0.49 per share, compared with consensus estimates of $0.45 per share to $0.20 per share in the year ago quarter. For this quarter, analysts' revenue estimates range from a low of $350.36 million to a high of $375.01 million, compared with a consensus estimate of $367.75 million or $189.60 million in the same quarter a year ago. For the quarter ended March, 2011, the consensus EPS forecast has increased from $0.44 per share estimated seven days ago to its current estimate of $0.45 per share.

In the last 52 weeks, Baidu's shares have been trading in the range of $60.22 and $148.92. The last trading price of the stock was $145.89 on April 18. During the first quarter FY 2011, analysts at Goldman Sachs reiterated Baidu's stock rating at buy with a new price target of $145.



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