The Recession Turns To Baidu (BIDU)

Baidu.com Inc. (NASDAQ: BIDU) has posted earnings after the close which were not very indicative of problems inside the company.  In dollar-adjusted terms, the company posted and operating profit of $54.2 million and earnings of $1.47 EPS net and $1.54 non-GAAP EPS.  Revenue gained 85% to $135.4 million.  First Call had non-GAAP EPS at $1.28 and revenues at $134.72 million.  Unfortunately, there is a lot more to consider than just its earnings.

There was a 7.2% sequential gain in active online marketingcustomers to more than 194,000.  The issue is that its huge growth may havebeen artificially helped by the Beijing Olympics. 

Its traffic acquisition costs as a component of cost of revenues were$16.0 million, or 11.8% of total revenues, compared with 11.9% in thesame period in 2007.

Baidu has also given us guidance for the quarter ahead of $151 million to $155million for Q4-2008 for annual growth rates of 80% to 85% andsequential growth rates of 12% to 15%.  First Call has estimates at$151.45 million in revenues.

With shares so far off of highs you’d think that this would be a goodenough report.  But the problem is that we are in the beginning stagesof what may end up being a long slow global recession and a bear marketwhich has not shown any signs of losing any teeth or claws.  This oneclosed up 0.17% at $249.09 in regular trading today, but shares aredown 3% at $241.60 in after-hours trading. Its 52-week trading range is $198.00 to $429.19.

Its market cap at the close was $8.53 billion, so using today’s revenueprojections and the mid-point for next quarters revenues would yieldtotal revenues for 2008 of roughly $481 million in revenues.  Tradingat more than 17-times revenues is just a tough sell in a globalrecession and a bear market, even if this is called the "Google ofChina" by traders.  And growth of 3% or even 9% in China feels like a recession. 

Google trades at roughly 7-times 2008 revenues andthe U.S. is considered a far more stable situation right now.

Jon C. Ogg
October 22, 2008