Wednesday, November 01, 2006

Color on quarter: (NASDAQ:BIDU)

Goldman Sachs comments on (NASDAQ:BIDU) following results saying the revenue shortfall was more pronounced than they thought from the 2 lost Beijing distributors.

Customer additions were well below expectations at approximately 12k versus GS 24k estimate and 16k in 2Q2006, which they believe is likely due to the distributor transition. While they expected limited upside to the high end of the range due to the lost distributors, they did not expect an outright miss and such low 4Q2006 guidance.

That said, firm's 2007 and 2008 estimates were previously too conservative and they have moved to revenue growth that maps closer to what Google saw. Firm is moving to a Neutral rating from Sell given ~10% upside to 12-month price target of $93 versus old year-end 2006 price target. Since initiating on 9/13/2005, the stock is up 7.3% versus the S&P up 12.3%.
Firm notes they would not buy Baidu stock as the execution challenges should last a few quarters. Prior to this quarter, their only issue with buying Baidu stock was its valuation. While higher 2007 and 2008 estimates make valuation more reasonable, we are seeing execution risk for the first time, resulting in a continued unfavorable risk/reward due to the combination of just 10% upside in the stock and uncertainty of the transition. Firm expects these two challenges to last a few quarters and could give competitors an opportunity to attract advertisers, which could lead to more issues.

Notablecalls: I must say I would not be surprised to see BIDU stock move lower from the levels reached in after hrs trading. Not a high conviction call as some of BIDU rev guidance shortfall was due to the fact the co has began to raise prices.


dman said...

PLEASE TELL ME MY PENSION IS NOT IN THIS!!! A CEO from SUNY BUFFALO and a CFO that worked for the China Securities Regulatory Commission. Do they even have a regulatory agency in CHINA? If your money is here KISS it BIDU!!!!

chinatrader said...

Couple of things: if you miss out China's exponensial gorwth, that's your problem.

Two: your pension sould not be depend on one stock. Never. Iven if it's GE or companies like Enron. All employees thought they sit on a gold mine. Always diversify!

Three, Chinese companies listed in the U.S .have to comply with U.S. rules!!! This condition is set by the NYSE or NASDAQ not by the Chinese. So if Baidu *BIDU) is listed on the NASDAQ, it means it complies with all the listing requirements NASDAQ sets. I think this naswers your Chinese regulatory part of your post.

and finally, if you want to get an educated opinuion about Chinese stocks listed in the U.S., patrticularly Baidu,com, read this short piece from Chinavestor's Newsletter.

...Remember, current stock prices reflect value of future earnings. As long as the market anticipates future yuan appreciation, the valuation of the Chinese banks will remain high.
Another excellent example of potential future earnings is (BIDU), the number one Chinese search engine company.
As the following screenshot displays, has been steadily recovering since February 2006. The company has kept delivering high top and bottom line growth while keeping profitability ratios high and constant. The company solidified its leading position among Chinese language search engines and skeptics in the investment community accepted Baidu’s high valuation. There have been six upgrades by major analysts since May 2006 and the good times seem to keep rolling.
And a recent survey for the “Best International Stocks” of The Motly Fool included Baidu in the group of elite companies like Toyota (NYSE:TM), Sony (NYSE:SNE) and Nokia (NYSE:NOK).
I think we should listen...