BIDU: What Can We Learn from China Internet Guide 2007? (1)
On Jan. 10, 2007, the Internet Society of China (ISC) released Internet Guide 2007, a survey report on China's Internet industry. Major U.S.-listed Chinese companies such as Sina, Sohu, NetEase, and Shanda, were evaluated in the report.
In the past, similar surveys have largely contributed to the rise and fall of certain Chinese Internet stocks. Baidu (BIDU) is a perfect example:
On the morning of Sep 13, 2006 (Beijing Time), two credible organizations, CNNIC (China Internet Network Information Center) and CIC (China IntelliConsulting Co.,Ltd), separately published their own China Internet Search reports. Both reports showed that Baidu had gained market share at the expense of Google's losses, solidifying market leadership.
CNNIC: Baidu's market share increased to 62.1% in 2006 from 47.9% in 2005, while Google's market share dropped to 25.3% from 33.3% in 2005 (click here for the report).
CIC: Baidu's market share increased to 61.9% in 2006 from 47.7% in 2005, while Google's market share dropped to 24.1% from 33.9% in 2005 (click here for the Beijing section of the report).
What happened next?
During the subsequent trading day (Sep 13, 2006), BIDU climbed 4.4% from $80.33 to $83.83.
On Sep 18, JP Morgan had a conference call with Peter (Bowang) Lv, Chief Analyst at CIC, about the CIC report (to verify, look for "JP Morgan" in this blog post by Peter Lv).
On Sep 20, 2006 (EST), JP Morgan published a positive research report on Baidu, citing both reports. BIDU rose 1.6% on that day.
On Sep 25, 2006 (EST), Citigroup upgraded BIDU to "Hold" from "Sell", raising target price to $105 from $70. The basis for his report? Yes, CNNIC and CIC surveys. Actually, before the upgrade, CIC's Peter Lv did a breakfast presentation to Citigroup on the report (to verify, look for "Breakfast Presentation" in this blog post by Peter Lv). BIDU rose 3.5% on that day.
In following months, Goldman Sachs and CIBC World Markets upgraded Baidu and WR Hambrecht initiated coverage with a "Buy" and $130 target price. BIDU climbed 55% from $80.33 to $124.55, despite a disappointing 3Q06 earnings report.
According to news reports, the CNNIC and CIC surveys have been among the most important evidence listed by all these Wall Street analysts who have changed their previously bearish view on BIDU.
The lesson: credible survey reports may have significant impact on Chinese Internet stocks. Investors should consider paying attention to the most recent report by the Internet Society of China. Beginning from the second post of this series, we will discuss the implications of the ISC report on Chinese Internet stocks.
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Thanks! Very good analyse indeed!
Posted by: CTH | Monday, February 05, 2007 at 10:54 AM