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BIDU 3Q07 (8): Analysts Helped Baidu Rebound from After-Hour Drop

Reversal from After-Hours Decline. Out of our expectation, Baidu (BIDU) shares surged 5.7% last Friday (Oct 26th) after Q3 earnings release. The night before, it declined 3.9% in the after-hours trading. What caused this reversal? We believe analyst actions played an important role.

Analyst Actions. On the morning of last Friday, 10 analysts published reports on Baidu's Q3 results (see table below). Here is a summary: 1) No upgrades or downgrades. 2) Five analysts maintained a positive rating; four maintained a neutral rating; one maintained a negative rating. 3) Five analysts raised their price target. Average price target was up 25% from $274 to $342; four maintained "No Target", one maintained prior target.

Table: Analyst Actions Following Baidu (BIDU) 3Q07 Earnings Report

Company	Rating	Price Target
Bear Stearns	Maintained "Peer Perform"	Maintained "No Target"
CIBC World Mkts	Maintained "Sector Performer"	Maintained "No Target"
Citigroup	Maintained "Buy"	Raised from $250 to $425
Credit Suisse	Reiterated "Underperform"	Raised from $143 to $196
Goldman Sachs	Maintained "Neutral"	Raised from $185 to $310
JP Morgan	Maintained "Overweight"	Maintained $400
Morgan Stanley	Maintained "Equal Weight"	Maintained "No Target"
Piper Jaffray	Reiterated "Outperform"	Raised from $330 to $374
RBC Capital Mkts	Maintained "Outperform"	Raised from $333 to $345
Susquehanna	Maintained "Positive"	Maintained "No Target"

Analysis. Although there were no upgrades, the average price target went up 25%. Half of the analysts remained bullish and half of the analysts raised price target. Overall, the bullish sentiment outweighed the bearish sentiment among analysts covering Baidu. Analysts' actions changed the market's previously bearish sentiment in after-hours trading to a bullish one in next-day regular trading. This is why the reversal happened.

What's Next. In the next article of our BIDU 3Q07 Series, we will analyze Baidu's performance between earnings releases, so that investors will have a better sense of how BIDU might perform before Q4 earnings.

BIDU 3Q07 Series:

(1): Baidu Maintained 4-1 Traffic Lead Over Google China

(2): Search Queries Increased 4% vs. Q2

(3): Baidu Expanded User Market Share to ~70%

(4): Baidu Has 2x Google China's Advertisers

(5): Historical Trading Pattern Reveals Key Metrics to Watch

(6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

(7) BIDU Will Likely Trade Down on Disappointing Guidance

(8) Analysts Helped Baidu Rebound from After-Hour Drop

Related: Latest Research on Baidu; Compare 19 China Internet Stocks

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BIDU 3Q07 (7): BIDU Will Likely Trade Down on Disappointing Guidance

What's the Focus. Baidu reported Q3 2007 earnings. The numbers were OK, but not great. As we pointed out in our Baidu 3Q07 Preview Report (5), investors should focus on next quarter (Q4) revenue guidance and this quarter's (Q3) actual revenue.

Results vs. Consensus. The table below shows Baidu's historical earnings results and next-day performance since its IPO. Based on the table, Baidu's Q3 revenue beat Wall Street consensus by 1.2%, and the mid-point of next quarter revenue guidance was in-line with consensus.

Less Impressive than Prior Two Quarters. These results are clearly not as impressive as those for the prior two quarters: In 1Q07, Baidu's revenue beat consensus by 3.7%, and guidance mid-point beat consensus by 12.6%. In 2Q07, Baidu's revenue beat consensus by 7.0%, and guidance mid-point beat consensus by 9.9%. This time, in 3Q07, these two numbers are much lower at 1.2% and 0.0%.

BIDU Will Likely Trade Down on Oct 26th. We believe investors are disappointed by the guidance because its mid-point failed to beat consensus. As a result, Baidu's shares will likely trade down on Oct 26th. As we pointed out in our Baidu 3Q07 Preview Report (5), next quarter revenue guidance is the BEST indicator for BIDU's next-day performance with a 75% hit ratio (=6/8).

Table: Baidu (BIDU) Historical Earnings and Next-day Performance Since IPO

Other reports in our Baidu 3Q07 Preview Series:

(1): Baidu Maintained 4-1 Traffic Lead Over Google China

(2): Search Queries Increased 4% vs. Q2

(3): Baidu Expanded User Market Share to ~70%

(4): Baidu Has 2x Google China's Advertisers

(5): Historical Trading Pattern Reveals Key Metrics to Watch

(6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

Related: Latest Research on Baidu; Compare 19 China Internet Stocks

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BIDU 3Q07 (6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

Topic: How was Baidu doing in 3Q07 in terms of revenue?

Data: According to consulting firm Analysys International, Baidu's revenue market share in China was 60.5% in Q3 2007, up 2.4 percentage points. Google China's market share increased 0.9 percentage points to 23.7%. Yahoo China's market share declined 1.2 percentage points to 10.4%. The table below shows the revenue market shares of Baidu and its competitors from 1Q06 to 3Q07. Analysys International also estimates total revenues of all Chinese search engines were $110 million in Q3 2007, up 28% from Q2.

Analysis: Based on the estimated total market size ($110 million) and Baidu's market share (60.5%), Baidu's total revenue in 3Q07 was $66.7 million (=$110 million x 60.5%). On average, Wall Street analysts estimate Baidu generated $65.5M in revenues in Q3. Baidu's official Q3 guidance is $64.6-66.5 million. This means Baidu's revenue in Q3 will beat Wall Street consensus and the high end of guidance.

Table: Revenue Market Share Trend of Chinese Search Engines (1Q06-3Q07)

	1Q06	2Q06	3Q06	4Q06	1Q07	2Q07	3Q07
Market Share:
Baidu	43.9%	50.3%	57.0%	58.0%	57.0%	58.1%	60.5%
Google	13.2%	16.2%	16.3%	17.0%	18.7%	22.8%	23.7%
Yahoo	21.1%	15.7%	13.0%	13.0%	13.6%	11.6%	10.4%
Sohu	9.2%	7.4%	5.5%	5.0%	4.6%	2.7%	1.4%
Zhongsou	4.2%	2.7%	3.1%	3.4%	2.9%	2.4%	2.0%
Sina	3.0%	2.7%	1.7%	1.1%	0.9%	0.6%	0.5%
NetEase	1.3%	1.3%	1.0%	0.8%	0.8%	0.6%	0.5%
Other	4.0%	3.7%	2.4%	1.7%	1.4%	1.1%	1.0%
Total	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
Quarterly Change:
Baidu	10.8%	6.4%	6.7%	1.0%	-1.0%	1.1%	2.4%
Google	0.2%	3.0%	0.1%	0.7%	1.7%	4.1%	0.9%
Yahoo	-5.9%	-5.4%	-2.7%	0.0%	0.6%	-2.0%	-1.2%
Sohu	-1.7%	-1.8%	-1.9%	-0.5%	-0.4%	-1.9%	-1.3%
Zhongsou	-1.2%	-1.5%	0.5%	0.2%	-0.5%	-0.5%	-0.4%
Sina	-2.4%	-0.3%	-1.0%	-0.6%	-0.2%	-0.3%	-0.1%
NetEase	0.3%	0.0%	-0.4%	-0.1%	0.0%	-0.2%	-0.1%
Other	-0.2%	-0.2%	-1.3%	-0.7%	-0.3%	-0.3%	-0.1%

Note: The analysis above is based on the assumption that Analysys International was right on their estimates. We suggest that investors do some research on this consulting firm's track record, before believing their estimates.

Other reports in our Baidu 3Q07 Preview Series:

(1): Baidu Maintained 4-1 Traffic Lead Over Google China

(2): Search Queries Increased 4% vs. Q2

(3): Baidu Expanded User Market Share to ~70%

(4): Baidu Has 2x Google China's Advertisers

(5): Historical Trading Pattern Reveals Key Metrics to Watch

Related: Latest Research on Baidu; Compare 19 China Internet Stocks

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BIDU 3Q07 (5): Historical Trading Pattern Reveals Key Metrics to Watch

Topic: What metrics should be investors' focus when reading Baidu's Q3 2007 earnings report? Are there any historical patterns?

Data: Below is Baidu's earnings history since its IPO. The following metrics (highlighted rows in the table) deserve special attention: 1. By how much did actual revenue beat or miss the Wall Street consensus?  2. By how much did next quarter revenue guidance beat or miss the consensus? 3. Price action on the trading day following the earnings announcement.

Table: Baidu (BIDU) Earnings History Since IPO

Source: Yahoo! Finance, Reuters, and company reports

Analysis: Based on the data above, we found the following patterns:

1. Next Quarter Revenue Guidance Is the Key. This metric shows Baidu's business outlook for the next quarter. When the next Q revenue guidance beat the Wall Street consensus (3Q05, 4Q05, 1Q06, 2Q06, 1Q07, 2Q07), the stock went up the next day 4 out of 6 times. When the next Q guidance missed the consensus (3Q06, 4Q06), the stock declined both times. We believe this metric is the BEST indicator for next-day performance with a 75% hit ratio (=6/8). And we suggest that investors pay most attention to this metric, which will be located in the "Outlook for Fourth Quarter 2007" section of the Q3 earnings press release.

2. Revenue Is Somewhat Useful. For the first three quarters (3Q05, 4Q05, 1Q06) after IPO, Baidu's revenue easily beat the consensus by at least 10%. The stock was up 2 out of 3 times after earnings. In the next three quarters (2Q06, 3Q06, 4Q06), Baidu barely beat or met consensus (1.9%, 0.5%, 0.0%). As a result, the stock dropped next day in all these three quarters. In 1Q07 and 2Q07, Baidu reversed the tide, beating consensus by 3.7% and 7.0%, and for both quarters the stock climbed on the following trading day.

3. EPS Is Less Important. For 6 out of 8 quarters, Baidu handily beat EPS consensus. For the two quarters (1Q06 and 1Q07) it failed to do this, the stock actually went up (37% and 14%) after earnings report. The implication is that BIDU is generally not impacted by whether or not it beats EPS consensus. An explanation for this is: China's paid search market is still in its early, high-growth stage. Therefore, growing revenue market share is the focus for both Baidu and investors.

Conclusion: For Baidu's Q3 2007 earnings report, investors should focus on two metrics: whether Q3 revenue beat consensus, and whether Q4 revenue guidance beat consensus. We have highlighted them in the table above.

Other reports in our Baidu 3Q07 Preview Series:

(1): Baidu Maintained 4-1 Traffic Lead Over Google China

(2): Search Queries Increased 4% vs. Q2

(3): Baidu Expanded User Market Share to ~70%

(4): Baidu Has 2x Google China's Advertisers

(6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

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Related: Latest Research on Baidu; Compare 19 China Internet Stocks

BIDU 3Q07 (4): Baidu Has 2x Google China's Advertisers

Baidu (BIDU) is the most popular search engine among paid search advertisers: in September 2007, Baidu had ~107K advertising clients, more than doubling Google's ~51K clients and Yahoo's ~52K clients, according to a recent report by research firms KKeYe and Dadu Consulting.

Summary of the Report. The report found that there were totally 184K paid search advertisers in China in September 2007, and these advertisers purchased over 7 million keyword ads in China during the month. We highlight two most metrics from the report that are very important to analyzing Baidu's current market position: Penetration Rate and Exclusive Advertisers.

1. Penetration Rate.

Table 1 shows that Baidu's penetration rate among paid search advertisers in China is 57.9%, more than doubling Yahoo's 28.4% and Google's 27.6%. This means: 57.9% of all the paid search advertisers use Baidu, while only half as many use Yahoo and Google. This demonstrates Baidu's dominant popularity among paid search advertisers in China.

Table 1: Comparing Search Engines' Customer Base in China

Search Engine	Number of Advertisers	Penetration Rate
Baidu	106,952	57.9%
Yahoo	52,470	28.4%
Google	50,967	27.6%
Tencent/Soso	25,713	13.9%
Zhongsou	10,190	5.5%
Sohu/Sogou	9,387	5.1%
Total	184,616	100.0%

Source: KKeYe and Dadu Consulting

Note: The sum of all the search engines' numbers is larger than the total number because some advertisers use multiple search engines and were counted multiple times as a result.

2. Exclusive Advertisers.

Exclusive advertisers are advertisers who only advertise on one search engine. According to data published by KKeYe and Dadu Consulting (Table 2), 73.7% of all the paid search advertisers only advertise on one search engine. Such a high exclusive ratio shows that paid search advertisers are very selective in China, and the competition is fierce among search engines.

We believe a high exclusive ratio indicates high customer loyalty. As shown in table 2, 70.6% of Baidu's advertisers only advertise on Baidu, the highest ratio among all the search engines in China. In terms of absolute numbers, Baidu had ~75K exclusive advertisers in September 2007, vs. Yahoo's ~32K and Google's ~15K. This comparison of customer loyalty demonstrates Baidu's superior customer satisfaction and customer loyalty, and shows that Baidu is dominantly more popular than all the other search engines in China.

Table 2: Comparing Search Engines' Number of Exclusive Advertisers in China

Search Engine	# of Advertisers	Exclusive Advertisers	Exclusive as % of Total
Baidu	106,952	75,455	70.6%
Yahoo	52,470	31,611	60.2%
Google	50,967	14,620	28.7%
Tencent/Soso	25,713	1,193	4.6%
Zhongsou	10,190	7,038	69.1%
Sohu/Sogou	9,387	6,059	64.5%
Total	184,616	135,976	73.7%

Source: KKeYe and Dadu Consulting

Other reports in our Baidu 3Q07 Preview Series:

(1): Baidu Maintained 4-1 Traffic Lead Over Google China

(2): Search Queries Increased 4% vs. Q2

(3): Baidu Expanded User Market Share to ~70%

(5): Historical Trading Pattern Reveals Key Metrics to Watch

(6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

Related: Latest Research on Baidu; Compare 19 China Internet Stocks

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BIDU 3Q07 (3): Baidu Expanded User Market Share to ~70%

Baidu (BIDU) has expanded its market share among Chinese users to around 70%, according to recent survey reports published by two authoritative research organizations, China Internet Network Information Center (CNNIC) and China IntelliConsulting Corporation (CIC).

CNNIC Survey Results:

Results of the CNNIC survey (Table 1) show that in the past year, Baidu has expanded its lead over Google and other search engines. As of August 2007, 74.5% of Chinese users picked Baidu as their most-favored search engine, up 12 percentage points vs. August 2006. Meanwhile, Google's market share dropped from 25.3% in August 2006 to 14.3% in August 2007.

Table 1: Chinese Users' Most-Favored Search Engine (CNNIC Survey)

Search Engine	Aug  '05	Aug '06	Aug '07	1-Year Change	2-Year Change
Baidu	47.9%	62.1%	74.5%	12.4%	26.6%
Google	33.3%	25.3%	14.3%	-11.0%	-19.0%
Other	18.8%	12.6%	11.2%	-1.4%	-7.6%
Total	100.0%	100.0%	100.0%	0.0%	0.0%

Source: China Internet Network Information Center (CNNIC)

CIC Survey Results:

Results of the CIC survey (Table 2) show that in the past year, Baidu has expanded its market share by 7.6 percentage points, while Google's market share has dropped 1.1 percentage points. In the past six months, Baidu and Google gained market share. Other search engines have lost market share during both the 1-year and the 6-month time frames.

Table 2: Chinese Users' Most-Favored Search Engine (CIC Survey)

Search Engine	Sep  '06	Mar '07	Sep '07	1-Year Change	6-Month Change
Baidu	61.9%	69.0%	69.5%	7.6%	0.5%
Google	24.1%	21.6%	23.0%	-1.1%	1.4%
Yahoo	5.2%	3.2%	2.3%	-2.9%	-0.9%
Sohu/Sogou	3.2%	2.0%	1.8%	-1.4%	-0.2%
Other	5.6%	4.2%	3.4%	-2.2%	-0.8%
Total	100.0%	100.0%	100.0%	0.0%	0.0%

Source: China IntelliConsulting Corporation (CIC)

Other reports in our Baidu 3Q07 Preview Series:

(1): Baidu Maintained 4-1 Traffic Lead Over Google China

(2): Search Queries Increased 4% vs. Q2

(4): Baidu Has 2x Google China's Advertisers

(5): Historical Trading Pattern Reveals Key Metrics to Watch

(6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

Related: Latest Research on Baidu; Compare 19 China Internet Stocks

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BIDU 3Q07 (1): Baidu Maintained 4-1 Traffic Lead Over Google China

During Q3 2007, Baidu's traffic market share remained stable compared with Q2. According to traffic analytics firms CNZZ and MAFR, Baidu (BIDU) still had four times Google's traffic in China.

1. CNZZ Data

CNZZ is the leading provider of website traffic tracking service in China. It recently published a report on Chinese search engines, based on its large web traffic database. The report showed that during August 2007, 71.2% of the traffic referred to Chinese websites were referred by Baidu. This means: for every 100 visits to Chinese websites through a search engine, Baidu was the "middleman" in 71 visits, connecting Internet users to their destination wesites. In other words, about 71% of Chinese Internet users find their destination sites through Baidu. In contrast, only 18.5% of the visits were referred by Google. In our view, this metric reflects a search engine's popularity among Internet users, so it is a very good represenation of traffic market share. According to the CNZZ data, Baidu has maintained its traffic dominance in Q3 2007, leading Google by a 4-to-1 ratio. Below is the detailed data from CNZZ:

Traffic Referrals by Chinese Search Engines (August 2007)

Search Engine	Market Share
Baidu	71.18%
Google	18.52%
Yahoo	3.59%
Tencent/Soso	3.35%
Sohu/Sogou	1.20%
Other	2.16%

Source: CNZZ

2. MAFR Data

MAFR is a competitor of CNZZ, providing websites with traffic tracking services. According to website referral data collected by MAFR, Baidu's traffic market share increased 0.8 percentage points to 72.7% in Q3 from 71.9% in Q2. Google's market share increased 0.7 percentage points to 17.2% in Q3 from 16.5% in Q2. Tencent also gained market share in Q3, while other search engines, including Yahoo, lost market share to Baidu, Google, and Tencent. Similar to CNZZ's result, MAFR's data show that Baidu's traffic is leading Google by a 4-to-1 ratio.

Traffic Referrals by Chinese Search Engines (Q2 and Q3 2007)

Search Engine	Baidu	Google	Tencent	Yahoo	Other	Total
September	72.3%	17.6%	4.3%	3.1%	2.7%	100.0%
August	73.0%	17.0%	3.9%	3.2%	2.9%	100.0%
July	72.7%	17.0%	4.1%	3.2%	3.1%	100.0%
Q3 Average	72.7%	17.2%	4.1%	3.2%	2.9%	100.0%
June	72.4%	16.3%	4.1%	3.3%	3.8%	100.0%
May	71.7%	16.7%	3.4%	4.1%	4.1%	100.0%
April	71.4%	16.6%	3.6%	4.4%	4.0%	100.0%
Q2 Average	71.9%	16.5%	3.7%	3.9%	4.0%	100.0%
Q3-Q2	0.8%	0.7%	0.4%	-0.7%	-1.1%	0.0%

Source: MAFR

Other reports in our Baidu 3Q07 Preview Series:

(2): Search Queries Increased 4% vs. Q2

(3): Baidu Expanded User Market Share to ~70%

(4): Baidu Has 2x Google China's Advertisers

(5): Historical Trading Pattern Reveals Key Metrics to Watch

(6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

Related: Latest Research on Baidu; Compare 19 China Internet Stocks

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BIDU 3Q07 (2): Search Queries Increased 4% vs. Q2

Data: In Q3 2007, search queries on Baidu.com were up 4% quarter-over-quarter (QoQ), according to our tracking of ~1,000 highly monetizable keywords.

Methodology: The keywords we selected represent all the major industries including finance, IT, real estate, transportation, apparel, chemicals, machinery, sports, e-commerce, and so on. The appendix is the data on a portion of the ~1,000 keywords tracked by China Analyst. To verify the accuracy of our tracking, please visit Baidu Index, where the company discloses search query data.

Analysis: Below is our interpretation of the data we collected:

1. QoQ traffic growth slowed down due to tough comparison. The 4% QoQ growth in Q3 is much lower than the 16.2% QoQ growth in Q2. The reason: Q1 is typically the weakest quarter of a year for Internet usage in China, as Internet users participate in various activities during the Chinese New Year holiday, spending much less time on their PCs. Traffic in Q2 is typically a lot higher than in Q1, as people spend more time on PCs and the Internet than they do during the Chinese New Year holiday. When it comes to Q3 vs. Q2, the comparison is much tougher than Q2 vs. Q1, because Q2 is typically a very strong quarter for Internet usage in China.

2. Traffic not the only revenue driver. For a search engine, Paid Search Revenue = Total Searches (Traffic) x Click-through Rate (CTR) x Cost-per-Click (CPC). This shows traffic is not the only revenue driver for Baidu. In fact, in Q2 2007, Baidu's total revenue was up 47.6% QoQ while its traffic only increased 16.2%. This means the other two factors jointly contributed 27.0% QoQ growth, as shown in this equation: 147.6%=(1+16.2%)x(1+27.0%).

2. Implications for meeting Q3 guidance. Baidu's Q3 revenue guidance ($64.6M-$66.5M) implies a 23%-26% QoQ growth. To meet the mid-point of this guidance (24.5% QoQ growth), the other two factors, CTR and CPC, need to jointly have 19.7% QoQ growth, based on the 4% QoQ traffic growth. The following equation shows the underlining math: 124.5%=(1+4%)*(1+19.7%). As long as CTR and CPC performed well, Baidu will still be able to meet the guidance.

3. Click-through Rate (CTR) in Q3. We believe CTR will increase in Q3 vs. Q2, but the QoQ increase will be much less than Q2 vs. Q1. The reason: Q1 was seasonally weak due to the Chinese New Year, when many advertisers halted business and adversiting activities. Advertisers did come back in Q2. As a result, there are much more ads showing on Baidu, resulting in a much higher CTR by search users. Q2 and Q3 are both strong quarters for the paid search business in terms advertiser participation, so we will not see a big jump in the number of ads running on Baidu.com. Therefore, the CTR will not increase as much as it did in Q2. Having said that, we still think the CTR will be slightly higher because the number of advertisers (and ads) are still growing on Baidu.com. 

4. Cost-per-Click (CPC) in Q3. Historically, Baidu has been able to raise CPC, leveraging its dominant traffic market share. For example, in June and September 2006, Baidu changed its ads ranking algorithm twice. The result was a much higher average CPC and a much slower growth rate in number of advertisers. In the past several quarters, the increase in CPC more than offset the slower growth in advertisers, as evidenced by the strong growth in average spending per advertiser. For CPC in Q3 2007,  we suggest that readers visit this blog for some CPC tracking results in the past. The author observed a more than 25% CPC increase from Jun 6, 2006 to Oct 17, 2006. This should be close to the CPC growth in 3Q06 vs. 2Q06. We think QoQ growth in 3Q07 should be lower than the 25%+ in 3Q06 because Baidu did not change ads ranking algorithm in 3Q07 while they changed it in June and September of 2006.

Note: To see a sample of the data we collected, follow this link.

Other reports in our Baidu 3Q07 Preview Series:

(1): Baidu Maintained 4-1 Traffic Lead Over Google China

(3): Baidu Expanded User Market Share to ~70%

(4): Baidu Has 2x Google China's Advertisers

(5): Historical Trading Pattern Reveals Key Metrics to Watch

(6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

Related: Latest Research on Baidu; Compare 19 China Internet Stocks

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Baidu (BIDU) 3Q07 Preview Reports

Baidu (BIDU) will report Q3 2007 earnings tomorrow (Oct 25) after market close. We have prepared the following reports, looking at Baidu's performance in Q3 from various angles:

(1): Baidu Maintained 4-1 Traffic Lead Over Google China

(2): Search Queries Increased 4% vs. Q2

(3): Baidu Expanded User Market Share to ~70%

(4): Baidu Has 2x Google China's Advertisers

(5): Historical Trading Pattern Reveals Key Metrics to Watch

(6): Baidu Q3 Revenue Estimated to Be $66.7M by Analysys International

Related: Latest Research on Baidu; Compare 19 China Internet Stocks

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BIDU: 20 Latest Research Articles on Baidu

Below are 20 latest research articles on Baidu (BIDU):

Baidu Traffic Tracker: August 2007 - China Analyst, 9/2/07

Baidu Traffic Tracker: July 2007 - China Analyst, 8/9/07

Baidu.com: Citigroup Also Positive on BIDU - Notable Calls, 9/17/07

Baidu.com: Actionable Trading Call Alert! - Notable Calls, 9/17/07

Paul Waide's This Week in China: Sina Aims at Baidu with Blogger Ads - MarketWatch, 9/16/07

Play It Safe With Chinese Dot-Coms - TheStreet.com, 8/1/07

Chinese Rocket Stocks Part II - TheStreet.com, 8/1/07

Fool on Call: Is Baidu a Google Slayer? - Motley Fool, 7/31/07

[Video] How to Read Baidu's Chart - TheStreet.com, 9/14/07

Deaf to Music Piracy - BusinessWeek, 8/31/07

Google Hits a Chinese Wall - BusinessWeek, 8/31/07

Google Increases Chinese Outposts - Motley Fool, 8/30/07

'Fast Money' Recap: Off to China - TheStreet.com, 8/28/07

Little G in Big China - Motley Fool, 8/21/07

Analysys International Says Baidu Led China Online Advertisement Market in Q2 2007 - Analysys International, 8/15/07

Paul Waide's This Week in China: China's Internet Giants Ready to Rumble - MarketWatch, 8/19/07

[Video] Lutts of Cabot Recommends Buying Baidu Over Google - Bloomberg, 8/15/07

Take Advantage of the Google and Yahoo! of China - TheStreet.com, 8/10/07

Cramer's 'Mad Money Lightning Round': Don't Bid Baidu Adieu - TheStreet.com, 8/2/07

A Wall St. Warrior's Top Volatility Stocks - TheStreet.com, 8/2/07

Related: China Internet Stocks Comparison Table; Research on China Internet Stocks

Baidu Traffic Tracker: August 2007

Topic: Two months have passed in Q3 2007. How was Baidu's traffic growth vs. Q2?

Data: Let's compare the first two months of Q3 with the first two months of Q2: Traffic to Baidu.com was up 3.8% quarter-over-quarter (QoQ) in July and August (vs. April and May combined), according to our tracking of ~1,000 highly monetizable keywords on Baidu.com. In August, traffic increased 7.0% vs. July and 1.1% vs. May.

Methodology: The keywords we selected represent all the major industries including real estate, finance, IT, transportation, apparel, chemicals, machinery, sports, e-commerce, and so on. The appendix is the data on a portion of the ~1,000 keywords tracked by China Analyst. To verify the accuracy of our tracking, please visit Baidu Index, where the company discloses search query data.

Analysis: Below is our interpretation of the 3.8% growth in July and August:

1. Traffic is not the only revenue driver. For a search engine, Paid Search Revenue = Total Searches (Traffic) x Click-through Rate (CTR) x Cost-per-Click (CPC). This shows traffic is not the only revenue driver for Baidu. In fact, in Q2 2007, Baidu's total revenue was up 47.6% QoQ while its traffic only increased 16.2%. This means the other two factors jointly contributed 27.0% QoQ growth, as shown in this equation: 147.6%=(1+16.2%)x(1+27.0%).

2. Implication for meeting Q3 guidance. Baidu's Q3 revenue guidance ($64.6M-$66.5M) implies a 23%-26% QoQ growth. To meet the mid-point of this guidance (24.5% QoQ growth), the other two factors need to jointly contribute 19.9% QoQ growth, assuming traffic grows 3.8% in Q3. The following equation illustrates the caculation: 124.5%=(1+3.8%)*(1+19.9%).

3. Click-through Rate (CTR) in Q3. We believe CTR will be slightly higher, but the QoQ increase will be much less than Q2. The reason: Q1 was seasonally weak due to the Chinese New Year, when many advertisers stopped running ads on Baidu. Advertisers did come back in Q2. As a result, there are much more ads showing on Baidu, resulting in a much higher CTR by search users. Q2 and Q3 are both strong quarters for the paid search business, so we will not see a big jump in the number of ads running on Baidu.com. Therefore, the CTR will not increase as much as it did in Q2. Having said that, we still think the CTR will be slightly higher because the number of advertisers (and ads) are still growing on Baidu.com. 

4. Cost-per-Click (CPC) in Q3. Based on the above analysis, we think CPC will have to increase about 15% quarter-over-quarer for Baidu to meet Q3 guidance. Historically, Baidu has been able to raise CPC, leveraging its dominant traffic market share. For example, in June and September 2006, Baidu changed its ads ranking algorithm twice. The result was a much higher average CPC and a much slower growth rate in number of advertisers. In the past several quarters, the increase in CPC more than offset the slower growth in advertisers, as evidenced by the strong growth in average spending per advertiser. For CPC in Q3 2007,  we suggest that readers visit this blog for some CPC tracking results in the past. The author observed a more than 25% CPC increase from Jun 6, 2006 to Oct 17, 2006. This should be close to the CPC growth in 3Q06 vs. 2Q06. We think QoQ growth in 3Q07 should be lower than the 25%+ in 3Q06 because Baidu did not change ads ranking algorithm in 3Q07 while they changed it in June and September of 2006.

Our Baidu Monthly Traffic Tracker will continue to monitor the traffic pattern going forward. We will publish a full-quarter review of Q3 in early October. And we suggest that investors look into the July & August data, July-April comparison, and Q2 data for more information.

Related: Compare 19 China Internet Stocks; Research on China Internet Stocks

Baidu Monthly Traffic Tracker: July 2007

Topic: The first month of Q3 (July) has passed. What was Baidu's traffic growth rate QoQ (July vs. April)?

Data: Traffic to Baidu.com was up 7.5% QoQ in July (vs. April), according to our tracking of ~1,000 highly monetizable keywords on Baidu.com. The keywords we selected represent all the major industries including real estate, finance, IT, transportation, apparel, chemicals, machinery, sports, e-commerce, and so on. The appendix is the July and April data on a portion of the ~1,000 keywords tracked by China Analyst. To verify the accuracy of our tracking, please visit Baidu Index, where the company discloses search query data.

Analysis: We think the 7.5% growth in July vs. April was not bad for two reasons:

1. Traffic is not the only revenue driver. For a search engine, Paid Search Revenue = Total Searches (Traffic) x Click-through Rate (CTR) x Cost-per-Click (CPC). This shows traffic is not the only revenue driver for Baidu. In fact, in Q2 2007, Baidu's total revenue was up 47.6% QoQ while its traffic only increased 16.2%. This means the other two factors jointly contributed 27.0% QoQ growth, as shown in this equation: 147.6%=(1+16.2%)x(1+27.0%).

2. Implication for meeting Q3 guidance. Baidu's Q3 revenue guidance ($64.6M-$66.5M) implies a 23%-26% QoQ growth. For Baidu to meet the mid-point of this guidance (24.5% QoQ growth), the other two factors only need to jointly contribute 15.8% QoQ growth, as shown in this equation: 124.5%=(1+7.5%)*(1+15.8%). The assumption of this calculation is that for the remaining two months of Q3, QoQ traffic growth remains at the 7.5% level.

Our Baidu Monthly Traffic Tracker will continue to monitor the traffic pattern going forward. And we suggest that investors look into the July, April, and Q2 data for more information.

BIDU 2Q07 (5): Strong Results; Expect Positive Next-day Trading

Topic: How will BIDU trade on Thursday, July 26th?

Data: Baidu (BIDU) reported strong results, beating all the three major metrics: Q2 revenue (7%), Q3 revenue guidance (9.9%), and EPS (22.1%). The table below is a historical review of BIDU's price action vs. earnings results.

Analysis: As we mentioned in the 4th article of our "BIDU 2Q07" series, next quarter revenue guidance is the key metric to watch in Baidu's earnings report. The company's Q3 revenue guidance beat Wall Street consensus by 9.9%, while the other less important metrics, revenue and EPS, also beat consensus. Operating metrics were also strong with a 14.3% QoQ growth in customer counts and a 24% QoQ growth in average spending per customer. Therefore, we believe the stock will definitely surge at least 10% in the Thursday (July 26th) trading session.

Table: BIDU Historical Next-day Price Action vs. Earnings Performance

 

Source: Yahoo! Finance, Reuters, and company reports

Related:

BIDU 2Q07 (1): Traffic Lead Maintained

BIDU 2Q07 (2): Traffic Up 16.2% QoQ

BIDU 2Q07 (3): Revenue Share Up 1.1% to 58.1%

BIDU 2Q07 (4): Historical Patterns Reveal Key Metrics to Watch

Q2 Earnings Schedule and Conf. Call Links for U.S.-Listed Chinese Stocks

BIDU 2Q07 (4): Historical Patterns Reveal Key Metrics to Watch

Topic: What metrics should be investors' focus when reading Baidu's Q2 report? Are there any historical patterns?

Data: Below is Baidu's earnings history since its IPO. The following items (highlighted rows) deserve special attention: 1. By how much did actual revenue beat or miss the Wall Street consensus?  2. By how much did next quarter guidance beat or miss the consensus? 3. Price action on the trading day following the earnings announcement.

Table: Baidu (BIDU) Earnings History Since IPO

Source: Yahoo! Finance, Reuters, and company reports

Analysis: Based on the data above, we found the following patterns:

1. Next Quarter Revenue Guidance Is the Key. This metric shows Baidu's business outlook for the next quarter. When the next Q revenue guidance beat the Wall Street consensus (3Q05, 4Q05, 1Q06, 2Q06, 1Q07), the stock went up the next day 3 out of 5 times. When the next Q guidance missed the consensus (3Q06, 4Q06), the stock declined both times. We believe this metric is the BEST indicator for next-day performance with a 71% hit ratio (=5/7). And we suggest that investors pay most attention to this metric, which will be located in the "Outlook for Third Quarter 2007" section of the earnings press release.

2. Revenue Is Somewhat Useful. For the first three quarters (3Q05, 4Q05, 1Q06) after IPO, Baidu's revenue easily beat the consensus by at least 10%. The stock was up 2 out of 3 times after earnings. In the next three quarters (2Q06, 3Q06, 4Q06), Baidu barely beat or met consensus (1.9%, 0.5%, 0.0%). As a result, the stock dropped next day in all these three quarters. In 1Q07, Baidu reversed the tide a little bit, beating consensus by 3.7%. The stock climbed on the following trading day.

3. EPS Is Less Important. For 5 out of 7 quarters, Baidu handily beat EPS consensus. For the two quarters (1Q06 and 1Q07) it failed to do this, the stock actually went up (37% and 14%) after earnings report. The implication is that BIDU is generally not impacted by whether or not it beats EPS consensus. An explanation for this is: China's paid search market is still in its early, high-growth stage. Therefore, growing revenue market share is the priority for both Baidu and investors.

Related:

BIDU 2Q07 (1): Traffic Lead Maintained

BIDU 2Q07 (2): Traffic Up 16.2% QoQ

BIDU 2Q07 (3): Revenue Share Up 1.1% to 58.1%

Q2 Earnings Schedule and Conf. Call Links for U.S.-Listed Chinese Stocks

BIDU 2Q07 (3): Revenue Share Up 1.1% to 58.1%

Topic: How was Baidu doing in 2Q07 in terms of revenue?

Data: According to consulting firm Analysys International, Baidu's revenue market share in China was 58.1% in Q2 2007, up 1.1 percentage points. Google China's market share increased 4.1 percentage points to 22.8%. Yahoo China's market share declined 2.0 percentage points to 11.6%. The appendix is a table showing revenue market shares of Baidu and its competitors from 1Q06 to 2Q07. Analysys International also estimates total revenues of all Chinese search engines were $86.34M in Q2.

Analysis: Based on the estimated total market size ($86.34M) and Baidu's market share (58.1%), Baidu's total revenue in 2Q07 was $50.2M (=$86.34M x 58.1%). On average, Wall Street analysts estimate Baidu generated $49.25M in revenues in Q2. Baidu's official Q2 guidance is $48.9M to $50.2M. This means Baidu's revenue in Q2 will beat Wall Street consensus and reach the high end of guidance.

Note: The analysis above is based on the assumption that Analysys International was right on their estimates. We suggest that investors do some research on this consulting firm's track record, before believing their estimates.

In the next article of our "BIDU 2Q07" series, we will outline the key points to watch from Baidu's 2Q07 reports.

Related:

BIDU 2Q07 (1): Traffic Lead Maintained

BIDU 2Q07 (2): Traffic Up 16.2% QoQ

BIDU 2Q07 (2): Traffic Up 16.2% QoQ

Topic: How was Baidu doing in Q2 in terms of traffic? Did total searches increase or decrease, and by how much?

Data: Traffic to Baidu.com was up 16.2% in Q2 vs. Q1, according to our tracking of ~1,000 highly monetizable keywords on Baidu.com. The keywords we selected represent all the major industries including real estate, finance, IT, transportation, apparel, chemicals, machinery, sports, e-commerce, and so on. The appendix is the Q2 and Q1 data on a portion of the 1,000 keywords tracked by China Analyst. To verify the accuracy of our tracking, please visit Baidu Index, where the company discloses search query data.

Analysis: The 16.2% QoQ traffic growth looks good, but Wall Street and Baidu itself expect a much higher revenue growth rate: On average, Wall Street analysts estimate Baidu generated $49.25M in revenues in Q2, implying a 38.0% QoQ growth vs. $35.7M in Q1. Baidu's official Q2 guidance is $48.9M to $50.2M, implying a 37.0%-40.6% QoQ growth. These numbers are a lot higher than the 16.2% traffic growth.

For Baidu to meet these revenue expectations, where can the remaining growth of 21.8% (=38%-16.2%) come from? The answer is in the following formula:

Paid Search Revenue = Total Searches x Click-through Rate x Cost-per-Click

Total searches on Baidu were up 16.2% in Q2. This means the remaining portion of the growth (21.8%) has to come from the other two factors: click-through rate and cost-per-click. In the future articles of our "BIDU 2Q07" series, we will discuss these two factors in detail.

Related:

BIDU 2Q07 (1): Traffic Lead Maintained

BIDU 2Q07 (1): Traffic Lead Maintained

How was Baidu (BIDU) doing in Q2 2007? In the "BIDU 2Q07" series, we will publish information from various sources and analysis from different angles.

Concern: Some investors worry that Baidu may have lost traffic market share in Q2 as a result of several strategic moves by Google.

Background: Recently, Google China has been aggressive in growing its traffic: It has partnered with No.1 Chinese portal Sina, acquired No.2 Chinese directory website 265.com, and obtained an ICP license to clear the hurdle in setting up more servers in China.

Data: Below is the market shares of major Chinese search engines based on total number of search queries, estimated by consulting firm iResearch.

Table 1: Market Shares of Chinese Search Engines Based on Queries

Search Engine	Dec-06	Jan-07	Feb-07	Mar-07	Apr-07	May-07
Baidu	69%	71%	76%	75%	74%	75%
Google China	9%	10%	10%	12%	13%	13%
Yahoo China	6%	7%	6%	6%	6%	5%
Tencent Soso	9%	6%	3%	3%	3%	3%
Sohu Sogou	2%	2%	2%	1%	2%	2%
Sina iAsk	1%	1%	1%	1%	1%	1%
Other	3%	3%	2%	2%	2%	2%
Total	100%	100%	100%	100%	100%	100%

Source: iResearch

Conclusion: Investors do not need to worry too much about Baidu losing traffic to Google in Q2. As the data indicate, we believe Baidu maintained its traffic lead over other search engines in China during 2Q07. It is still the dominant Chinese language search engine serving 75% of total queries.

In the second article of the "BIDU 2Q07" series, we will provide data and analysis on Baidu's traffic growth in Q2.

Baidu Lost Market Share in Q1 2007

Baidu had a decent 1Q07 (revenue: $35.7M; EPS: $0.32) and provided a bullish revenue guidance for 2Q07 (37%-41% QoQ growth. However, in 1Q07, Baidu lost market share against Google China and Yahoo China, based on the table below. Key observations:

1. Baidu's market share in 1Q07 decreased one percentage point to 57% from 58% in 4Q06.

2. As highlighted in yellow, during 1Q07, Google China and Yahoo China gained market share at the expense of Baidu.

3. Despite a slower growth, Baidu still dominates China's paid search market by a large margin.

BIDU: Baidu 1Q07 Earnings: Key Things to Watch

Baidu will report Q1 2007 earnings today after market. For the past three earnings releases, the trend has not been pretty: From Q2 to Q4 2006, BIDU consistently dropped on next trading day after the announcement.

In the table below, we highlight the key things to watch from Baidu's Q1 2007 earnings report: The area in yellow shows the comparison of guidance, consensus, and actual revenue from Q2 to Q4 2006. The area in red shows the price reaction on the next trading day after earnings. The area in blue shows the key places to watch when evaluating the Q1 2007 earnings results.

Will Baidu reverse the tide this quarter? To do this, the company really has to make some big changes in the past four months that can significantly boost the revenue. They have not yet disclosed such changes. After the earnings report, we will publish a review about what to do with the stock going forward.

Company Presentations at the 10th Credit Suisse Asian Investment Conference: BIDU, EDU, MR, SINA. STP

Many U.S.-listed Chinese companies made presentations to Wall Street institutional investors during the 10th Credit Suisse Asian Investment Conference, from March 27 to March 30, 2007. Five of these companies have generously allowed individual investors to listen to replays of their presentations over the internet. They are: BIDU, EDU, MR, SINA, and STP. The table below includes webcast links to these replays. Registration is quick and free.

What's the importance of these presentations? They are very different from quarterly earnings conference calls because presentations during investment conferences (such as this Credit Suisse one) typically include more comprehensive information about the featured companies. Executives of these public companies try hard to impress potential institutional investors by presenting their companies in a concise and clear format. For investors who are looking for a quick and comprehensive overview of a company, these presentations are actually better than quarterly conference calls.

We encourage investors to listen to these presenations, and we will provide our opinions in future articles.

Company	Ticker	Presenter	Webcast Link
Baidu.com	BIDU	Shawn Wang, CFO	Click here
New Oriental Education	EDU	Louis T. Hsieh, CFO	Click here
Mindray Medical	MR	Joyce Hsu, CFO	Click here
Sina Corp.	SINA	Charles Chao, CEO	Click here
Suntech Power	STP	Zhengrong Shi, CEO	Click here

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