Expect good Q3 numbers: around top-end of its guidance
range. We believe Baidu executed well during 3Q08, despite
negative impacts from the Olympics and macro issues. We
expect Baidu to report numbers around top-end of its
guidance range (US$132M-US$136M) vs. consensus
forecast of US$133.6M.
Margins should be inline with historical range.
TAC (traffic acquisition cost) should be back to 13-14%
level in 3Q08, up from the surprising low 12.7% in 2Q08.
We maintain our diluted EPS forecast of US$1.25.
4Q08 outlook continues to be strong. We expect company
should be able to deliver ~15% sequential revenue growth
(or ~87% YoY) to ~US$155M in 4Q08, vs. consensus of
US$151.6M. We expect strong internet usage growth and
increasing ad budget allocation to online media should
benefit Baidu and other online ad companies.
To set a good opening for internet sector. Baidu is the
first Chinese Internet company to report 3Q08 results.
We believe the good results and guidance should set a
positive tone for other China internet companies.
Besides Baidu, we also like Sina and Sohu at this
level.
Maintain Dec-08 PT of US$380, which implies
90.6x 2008E, 56.2x 2009E, and 36.9x 2010E
diluted GAAP P/E (or 83.5x 2008E, 53.6x 2009E,
and 35.8x 2010E diluted adjusted P/E). We
would advise investors to accumulate
the stock ahead of results.
Near-term share price drivers are: (1) potential upside
from conservative Q3 guidance, (2) margins improvements
in 2009 on better leverage from brand advertising, and
(3) earnings upside from new eCommerce business.
Monday, October 20, 2008
Bullish call by JP Morgan
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