Baidu Still Expected to Outperform

Tags: bidu, goog, yhoo, sina, sohu
22 Jan 4:20am
Posted by ZacksResearch
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An update has just come out today on Baidu.com (BIDU), in which senior information technology analyst Paul Cheung, CFA has issued a Buy rating to the company. We excerpted the following details:

'Baidu's financial results for the third quarter again exceeded the market consensus. With China's most popular search engine, Baidu has an advantage over rivals in China's fast-growing online advertising market. In addition, Baidu continues to expand its product lines to attract users and boost revenue. Although fierce competition from Google (GOOG) and Yahoo (YHOO) prevents Baidu from building a wide economic moat, we think Baidu is currently undervalued based on its growth prospects.

'The Chinese market for paid search is expected to grow rapidly in the next few years. Baidu has the advantages to leverage the favorable trend of paid search as the company has announced impressive financial results quarter after quarter. However, due to the ultra-competitive nature of China's online paid search industry, a search technology breakthrough by a rival could erode Baidu's competitive advantage.

Additionally, competition from search engine rivals including Google, Alibaba/Yahoo, Sohu (SOHU), and Sina (SINA) could steal market share from Baidu. Unexpected changes in Chinese government regulation could also severely affect Baidu's business model. Expansion in overseas market may not be as successful as expected due to a lack of experience.

'The stock is currently trading at 72x our estimated earnings per share (EPS) for fiscal year 2008, which is significantly higher than the industry mean and that of its Chinese peers. The stock is also trading at 46.5x our estimated EPS for fiscal year 2009. Using a P/E multiple of approximately 60x our fiscal year 2009 EPS estimate yields a target price of $350, which we believe reflects the company's growth prospects. Therefore, we are maintaining our Buy recommendation for BIDU shares.'

Read the full analyst report on BIDU.

Read the full analyst report on SOHU.

Read the full analyst report on SINA.




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