According to firm's industry sources, performance of Phoneix Nest is not yet satisfactory. They believe the launch of Phoneix Nest has not replaced the Classic P4P system yet, and substantial amount of Baidu revenue is still generated by Classic P4P.
Phoneix Nest, Baidu’s new advertising system, was officially launched on 20 April. Market believed Phoneix Nest will be a short-term growth driver, and expected Phoenix Nest will totally replace Classic P4P system soon. However, according to industry sources, performance of Phoneix Nest is not yet satisfactory. Also, Baidu announced that, starting from 15 June, two types of keywords are restricted to be advertised on Phoneix Nest only: 1) Professional keywords and 2) keywords with limited business value. As such, the firm views that Baidu does not want to replace the Classic P4P system with Phoneix Nest too soon. Finally, based on theirsample keywords, the average number of ads on the LHS was between 3.5 to 6.0 ads per keyword (except 15 May) after Phoneix Nest launch, at a similar range as before. As such, CSFB believes the launch of Phoneix Nest has not replaced the Classic P4P system yet, and substantial amount of Baidu revenue is still generated by Classic P4P.
They raise 2009E EPS by 3% and 2010 by 2% due to better SPI. They increase their DCF target price to US$250 from US$200, implying 38x 2009E P/E and 1.47x PEG. Due to rising competition from Google and vertical search engines in China, the firm expects Baidu revenue market share to decline from 59% in 2008 to 46% in 2012, and should not trade at a premium. Trading at 49x P/E and 1.86x PEG, Baidu is not attractive. Due to expensive
valuation, they downgrade Baidu from Neutral to UNDERPERFORM
Notablecalls: This should hurt BIDU stock as the Phoenix Next has been their much hyped new advertising system.
I'm guessing this one will be down 5 pts in a jiffy.