Analyst take on Q1 08 - Goldman Sachs

Baidu reported 1Q net revenue, operating income
and EPS of Rmb 539mn (up 108% yoy), Rmb 164mn (up
90% yoy), and Rmb 4.68 versus our 507mn, 148mn,
and 4.50 estimates. Revenue outperformance of 6%
reflected solid customer growth with ~ 6,000
additions vs. our 4,500 estimate and 45% yoy
growth in spending per customer vs. our 38% yoy
estimate. Top-line growth of 108% decelerated
fractionally from 110% yoy in 4Q2007 with 2Q2008
guidance implying a steeper deceleration against
a tough comp in the year-ago period. Higher TAC,
SG&A, and R&D costs resulted in EBITDA only
exceeding our estimate by 3%. GAAP net income
was largely inline with our estimate, not helped
by lower interest income and higher taxes. We are
raising our revenue and EPS estimates by 6% and 4%
respectively, and our price target to $310 from
$280 previously.

Implications
Revenue growth of 1% qoq in 1Q2008 compared with
2% qoq in 1Q2007. Interestingly, consensus
originally modeled a flat revenue quarter, before
Baidu guided for a 5% revenue decline at its 4Q
results. 2Q guidance is for 38% qoq growth at the
midpoint, consistent with our estimate for 39% qoq
though off a bigger base, and against 46% qoq revenue
growth in 2Q2007. TAC again rose on more affiliates,
while operating expenses climbed on headcount
additions in a seasonally low-revenue quarter. If
the China Netcom partnership generates material
revenue, then TAC should rise sharply further in 2Q2008.

Valuation
Our 6-month price target of $310 (versus $280 previously)
is based on P/E to normalized growth and a DCF analysis
and implies 77X our 2008E, 51X 2009E, and 36X 2010E EPS.

Key risks
1) Paying customer additions; 2) competition from Google
and Alibaba Group, and 3) capex.