Baidu Earnings Confirm It's a Titan of Tech Stocks
The search giant beat on both the top and bottom line and is poised for much more growth now that Google has exited its Chinese market.
Baidu (BIDU) had posted two very strong quarters to start 2010, and has continued to be the principal benefactor of the Google (GOOG) exit from China. Yesterday I posted a strategy for hedging bets on Baidu into earnings, and that provided a chance to stay involved in the stock for higher prices while locking in gains from the recent run higher. Since the announcement yesterday after the close, I've gotten a strong indication that Baidu still has tremendous upside in store.
When the market sold off Street-beating earnings from Apple (AAPL), VMware (VMW), and International Business Machines (IBM), some investors grew wary of future tech earnings in stocks that had enjoyed strong runs into their reports. Baidu fit that description, but there was never an inclination that the Chinese search giant would find itself in any trouble. Google has proven the potential for explosive revenue growth due to a strong search brand, and Baidu is well positioned to profit in the fastest-growing economy in the world. Even Yahoo (YHOO) injected further optimism into the search-and-advertising realm after a strong report this week. With Google fading from the search picture in China, it leaves further room for Baidu to establish a stranglehold on market share. Growth in revenue per customer, an important metric to consider for a search giant like Baidu, grew an impressive 10.7% from the second quarter, up to $1,241. The company has doubled its net income in 12 months and continues to add online market customers. Baidu is sitting on a little more than $1 billion in cash after the third quarter.
Now to the report itself. Baidu reported earnings per share of 46 cents, handily topping analyst estimates of 41 cents. In addition, the company beat with revenues of $337.2 versus $333.26 expected. When a high-growth stock like Baidu beats on both the top and bottom line, it's a recipe for higher prices, which made the initial post-report sell-off somewhat peculiar. The company projected its fourth-quarter revenues at $354.2 to $364.7, sharply higher than the $348.5 million Wall Street estimate. Prudent investors snapped up cheap Baidu shares below $100 after the report, and watched as the stock went green and never looked back. Folks, this stock will likely never again see prices under $100.
Trading volume this morning has confirmed the fast-growing demand for Baidu shares, as 20-day average daily trading volume was exceeded within the first minute of trading. The stock has pulled off slightly from morning highs above $109, but it should ultimately settle in the measured move $115-$125 area in the coming weeks. Several firms have raised price targets for Baidu in light of the strong report and bullish action. Piper Jaffray upgraded it to Overweight from Neutral, slapping on a $139 price target, up from its previous $81 per share target. RBC Capital raised its price target to $111 from $102, and ThinkEquity moved its to $130 from $115.
(Below chart is from Thursday, October 21).
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