Friday, December 5, 2008

Goldman cuts estimates

“Following a meeting with management, we believe
that Baidu is suffering from advertisers bidding less
in certain categories such as manufacturing and
logistics, due to reduced confidence and, in some
cases, bankruptcies,” he writes. “Baidu’s revenue
may be more performance-driven than other China
media but less performance-driven than search engines
elsewhere because many of its advertisers use search
to support brands rather than drive online
transactions. We do not believe consumers are
clicking less often on sponsored results yet, though
they may do so in the future.”

Mitchell cut estimates on the company following
its recent suspension of search ads from unlicensed
health-care advertisers; today he cuts numbers
again. For 2008, his EPS estimate drops by 2%,
to $4.81. For 2009, he cuts by 11%, to $6.60, and
for 2010 he comes down 20%, to $8.54. He adds
that Baidu “appears willing to consider removing
paid listings from the left-hand side of its results
page,” which would reduce the numbers even

Mitchell has slashed his price target on the stock
to $145, from $225, reflecting both lower
estimates and a lower target 2009 P/E multiple
of 22x, versus 30x previously, “as Baidu may be
proving cyclical earlier than we expected.” He
maintains a Neutral rating on the stock.

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