BIDU Guides above estimates, Announces split
Published on April 29, 2010
Published on April 29, 2010
BIDU reports Q1 (Mar) earnings of $2.02 per share, $0.52 better than the Thomson Reuters consensus of $1.50; revenues rose 59.9% year/year to $189.6 mln vs the $180.1 mln consensus. Co issues upside guidance for Q2, sees Q2 revs of $268.1-274.0 mln vs. $240.07 mln Thomson Reuters consensus. Online marketing revenues for the first quarter of 2010 were RMB1.293 billion ($189.5 million), representing a 59.6% increase from the corresponding period in 2009. Baidu had around 221,000 active online marketing customers in the first quarter of 2010, representing a 19.5% increase from the corresponding period in 2009 and a 0.9% decrease from the previous quarter. Revenue per online marketing customer for the first quarter was approximately RMB5,900 ($864), a 34.1% increase from the corresponding period in 2009 and a 3.5% increase from the previous quarter. Traffic acquisition costs (TAC) as a component of cost of revenues were RMB171.3 million ($25.1 million), representing 13.2% of total revenues, as compared to 15.3% in the corresponding period in 2009 and 16.0% in the fourth quarter of 2009. The decrease in TAC as a percentage of total revenues reflects initiatives to drive quality improvements on Baidu Union traffic. Co also announces a 10:1 ADS split.
At $700, is it expensive, cheap? Attached is BIDU charts since it was listed in 2005.
As you may see; the performance of the stocks has been phenomenal. In fact, after hitting $100.5 in late 2008, the stock has risen over 6times (well almost > 7 times if you include after hours trading); that’s an astonishing performance especially when comparing with the bigger company like Google. Currently BIDU trades at 100times current earnings(TTM) in comparison to Google that trades at about 25times. Almost similar is the case for going forward i.e. BIDU 2x on FPE. On a Price/Cash Flow, BIDU is roughly 64times vs. Google that is 18times (not adjusted for yesterday’s results).
But growth stocks are priced for a different story. In last 10 years, the revenue at BIDU has grown revenue from $1 to $650millions (ttm). In a 1billion+ country, there are only 221,000 active online marketing customers generating <$1,000/customers/quarter. Growing both size and revenue/customer in absence of a big league competitor doesn’t seem that of a big issue (assuming Google closes office in China). I ran a rough reverse DCF model to see what kind of growth BIDU will have to deliver to justify $700 valuation. Assuming $217.5million in earnings, 34.75millions shares outstanding, zero debt, 5% terminal growth rate from 11th year onwards, discount rate as 12% for both short and long term (roughly same as for S&P500); I arrive roughly at 33% CAGR for next 10years to justify $700.
So is it expensive, or is it cheap? While achieving 33% CAGR doesn’t seem impossible, but as BIDU grows in size, it will become more and more difficult to achieve this rate especially if 1) other search engine enters China market and/or 2) BIDU doesn’t gain strength in overseas markets.
Disclaimer– As of this writing I have open positions on BIDU options that I may close anytime. The above data is for rough approximation only. You should do your due diligence before making any investment decisions.
Profitable Trading, OP