Tuesday, April 10, 2007

Calls of Note Part 4

Susquehanna introduces their proprietary Baidu Query Tracking for Baidu.com (NASDAQ:BIDU), which monitors the search volumes of approximately 2,000 key words on Baidu.com. These key words are selected in such a manner that they cover a wide variety of industry sectors, as well as users' daily consumption needs. A modeling technique is then deployed to estimate M/M and Q/Q query growth. The most recent data show that relevant queries grew by 17.4% Q/Q in 1Q07, continuing to demonstrate robust usage growth on Baidu platforms, despite the weak seasonality due to a late Chinese Lunar New Year. Thus, flat Q/Q revenue guidance already provides a cushion for potential dips in click-through rate and bid price. Firm thinks the company meeting the Street's expectation of 2Q sequential sales growth at mid to high 20s is not impossible, as they believe there will be continuous volume and pricing growth. Firm reiterates their Positive rating on BIDU.

Firm expects search query growth in 2Q07 to be around 20% Q/Q. They arrive at the conclusion by assuming average queries in April through June to equal March. Since the Chinese Internet market is driven by both user growth (~20% CAGR 2007-2010) and usage growth, they believe their assumption of no M/M growth in Q2 is conservative. If combined growth of click-through rate and average bid price could increase 8% Q/Q, the consensus expectation of 28% Q/Q revenue growth would not be impossible for Baidu, in their view.

Notablecalls: Baidu Query Tracking has yet to prove its accuracy, but the call should generate mild interest in BIDU shares. There have been concerns about BIDU's 2Q and despite not being extremely convincing, Susquehanna somewhat alleviates these concerns.

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