Saturday, October 31, 2009

Adding handwriting recognition system

Baidu has added an online input function which provides a box
where users can write with the mouse. The search engine
recognizes the written characters and proceeds. For now,
the input uses a drag and drop interface from a template
to the right.

New Beijing building to open on November 17

Official opening....

Analyst action: consolidated

Except for S&P, which raised from strong sell to sell,
no analyst has changed rating. Street low is $263,
from CS (matches the historical trend), down from their
previous street low of $290. The street high is now $480
(CLSA) down from Merrill Lynch's previous $512.

GS: buy, PT lowered from $455 to $435

Citi: buy, PT lowered from $480 to $440

HSBC: underweight, PT raised from $300 to $375

CS: underperform, PT lowered from $290 to $263

BofA(ML): buy, PT lowered from $512 (old highest)
to $455

CLSA: buy, PT left at new street high $480

RBC: outperform, PT lowered from $484 to $403

S&P: sell, PT raised from $265 to $350

Morgan Stanley: equal weight

Deutsche Bank: hold, PT left at $411

JP Morgan: overweight, PT lowered from $480 to $460

Susquehanna: positive, PT raised from $380 to $450

Sanford Bernstein: outperform, PT lowered from $460
to $420
Oppenheimer: perform

Wednesday, October 28, 2009

Analyst action: Citi, HSBC

Citi lowers PT from $480 to $440. HSBC raises PT from
$300 to $375.

Analysts: Credit Suisse "underperform": details

3Q09 diluted EPS was US$2.07, up 28% QoQ, in line with
consensus. Revenue was Rmb1,278 mn, up 17% QoQ, within
guidance, but gross margin was up from 63.7% in 2Q09 to
65.4% in 3Q09. Net cash was Rmb3.96 bn in 3Q09 (or
US$16.8 net cash per ADR).

Active customers number was 216,000, up 11% YoY.
ARPU was Rmb5,918, up 25% YoY. ARPU growth rate
has been above customer growth in the past nine out of
ten quarters.

Baidu announced that it will migrate all advertising to
Phoenix Nest on 1 December and Classic P4P system
will be discontinued. Management expects the migration
to impact 4Q09 revenue negatively by 10%. We expect
December to suffer the most, and 1Q10 revenue would
be Rmb1,045 mn, down 14% QoQ or up 29% YoY.

Due to Phoenix Nest migration, we cut our 2009 diluted
EPS by 10%. Due to Phoenix Nest's positive user experience,
earnings cut in future years are lower. We lower our
DCF-based target price from US$290 to US$263, implying
33x 2010 P/E. Trading at 55x 2010E P/E, Baidu is
overvalued. We reiterate our UNDERPERFORM rating.

Analysts: Merrill Lynch, CLSA maintain rating and PT

Both buy ratings. PTs of $455 and a street-high $480,
respectively. Merrill Lynch earlier had the street high
of $512, now reduced to $455.

Goldman's earnings estimates for Q4, 2010 and 2011

James Mitchell of GS cut $6.83 2009 EPS estimate
to $6.54, $11.46 for 2010 to $10.34 and
$16.05 for 2011 to $15.45.

Tuesday, October 27, 2009

Search market share for Q3 per Analysys

Baidu at 63.9% and Google at 31.3%, up from
29.1% in Q2. Search market share, ie percentage
of revenue from ad customers, can be expected
to go up for Google (and down for Baidu) in the
next two quarters, as per Baidu's guidance. Search
user share, ie the percentage of end-users searching
using Baidu, should not go down because of the
Phoenix switch.

Wireless client software

Baidu is seemingly inviting its employees to test a new
smart-phone version of Baidu search, with Post Bar
and Baidu Knows Q&A included. The software is
expected to be free.

Analysts: RBC cuts estimates for Q4 and 2010

Analyst Stephen Ju expected a gradual transition
to Phoenix, given what management had told him
in mid September. Expects Baidu to struggle over
the next two quarters, with slower customer signups
and slower ARPU growth. Cuts Q4 09 pro forma
EPS estimate to $6.34 from $6.44, and 2010 estimate
from $10.44 to $8.88 (almost 15%).

Analysts: Pali's Hou on Baidu's sales outlook

Tian Hou believes Baidu's growth is tied to China's
GDP growth, which should be solid this quarter and
next year. Believes the Phoenix Nest transition dip
in revenue is a one time thing. Expectations of over
60% year-over-year growth misplaced. Expects
Baidu to maintain dominance in the near term.
Also believes Baidu will be able to have low expenses
in the General and Administrative categories, but not
in R&D (being a tech company) and marketing (since
their customers are largely SMEs, they need a large
sales force to have a reasonable sales:customer ratio).

Analysts: S&P upgrades from Strong Sell to Sell

Price target moved up from $265 to $350.

Analysts: Morgan Stanley, CS, Deutsche Bank

Morgan Stanley maintained Equal-weight rating.
Credit Suisse reiterated Underperform rating,
and reduced price target from $290 to $263.
Deutsche Bank maintained Hold rating and
$411 price target.

Analysts: Oppenheimer maintains rating, more from Susquehanna

"We believe the transition will result in short-term
pain but long-term gain in terms of monetization as
(Phoenix Nest) increases the matching of more
relevant paid links resulting in higher click-through
rates," wrote Paul Keung, an analyst with
Oppenheimer & Co., in a note to investors. He kept
a "Perform" rating on Baidu.

Susquehanna analyst C. Ming Zhao said while the
company's decision to force its customers to migrate to
the new ad system will sacrifice its growth in the next
couple of quarters, the payoff will be "healthier and
more sustainable growth in the future."

The analyst expects Baidu to resume its "solid growth
trend" in the second quarter of 2010.

GS, JP, Susquehanna, Bernstein lower PT, keep buy ratings

"With only 36 days to move about 80 percent of
revenue to the new bidding system and
customer-to-sales ratio of only around 60:1, we
believe earnings volatility in the fourth quarter of
2009/first quarter of 2010 could be high," analysts
at J.P.Morgan Securities wrote in a note to clients.
On the other hand, a shorter transition time will
likely gather stronger momentum, creating a sense
of urgency for customers to switch, JP Morgan
analysts said. Baidu's Phoenix Nest technology,
introduced in April, is an overhaul of the company's
keyword advertising bidding system
and is expected to improve Baidu's monetization of its
search results. The Phoenix Nest bidding system is a
more advanced system and is likely to bring higher
return on investments to customers and revenue to
Baidu, JP Morgan analysts said. The company's growth
is expected to accelerate in the second quarter of
next year, around six months after the full transition to
the Phoenix Nest bidding system, they added, and
urged investors to add Baidu shares on weakness for
long-term benefits of Phoenix Nest. Separately, Goldman
Sachs analysts said Baidu's decision to discontinue the old
bidding system by Dec. 1 is strategically justifiable, as
running two bidding systems in parallel is logistically
complex, confusing for advertisers, and weakens the
bidding process. Still, Goldman analysts expressed
disappointment as management did not communicate the
risks around a faster transition to investors sooner.

The table below lists the price target changes on Baidu:

Brokerage: New PT: Prior PT: Rating
Bernstein 420 460 Outperform
Goldman Sachs 435 455 Buy
JP Morgan 460 480 Overweight
Susquehanna 450 380 Positive

Monday, October 26, 2009

Analyst comments AFTER earnings

The weak fourth-quarter guidance came as a surprise,
but in the longer term, the better efficiencies from
Phoenix Nest, which works similar to Google's AdWords,
should benefit the company, said JP Morgan analyst
Dick Wei.

"It is just short term pain, the long term fundamentals
of the company are still strong," he said.

Pacific Crest's Weinstein echoed the same sentiment,
pointing out the Q3 results have been very strong.
He believes the company's fundamentals are solid.

Search-based ads are cheaper than other forms of
advertising, which makes them popular with small
businesses in China that are just catching on to the
Internet, says Rob Lutts, chief investment officer and
president of Cabot Money Management, a $450 million
fund and Baidu shareholder.

"The key drivers for this company are just starting to
lock into gear," he said. "These are small to medium-sized
businesses of anywhere between 50 and 500 employees,
and they are just starting to use the Internet."

Analyst comments BEFORE earnings: RBC, Nomura

RBC reiterated outperform raising PT from $339 to $484,
*before* earnings were released. Nomura maintained a sell,
both before and after earnings, maintaining margins were
likely to fall, and the stock probably going to $320.

Switching over completely to Phoenix Nest by Dec 1

Expects a hit in revenue for about 2 quarters following
that. Around 70% of customers now use Phoenix Nest,
but only 20% of revenue is from it. The top left panel
ad is managed totally by Phoenix Nest, with some right
side keywords also managed by it. Most of the Phoenix
Nest revenue is from the top left panel ads.

Baidu had a somewhat similar change to its PayPerClick
algorithm almost exactly 3 years ago. Taking a short-term
revenue hit to position for medium-term market share.

Friday, October 23, 2009

Pali positive on Baidu

Profit “could be better than the consensus of
$1.78,” said Tian Hou, a New York-based analyst
at Pali Capital Inc., in a research report today.
Revenue will come in “above consensus and in line
with our estimate, driven by an increased sales
penetration as well as China’s economic recovery,”
she wrote. Hou forecast profit of $1.97 a share.
Left rating at Neutral.

Thursday, October 22, 2009

ABN Amro raises PT to $470

Reiterating Buy rating, just two days after their
prior call.

Wednesday, October 21, 2009

Sanford Bernstein reiterates outperform

Price target raised by the analyst, Jeff Lindsay,
to $460 from $400.

Tuesday, October 20, 2009

Monday, October 19, 2009

Partnership with NetEase

NetEase users can now directly login to NetEase's
email accounts such as, and by searching via Baidu, and using the
Baidu login.

Tie-up with China Unicom

Baidu will be the default browser on 3G mobile
handsets sold by China Unicom (including the
iPhone). This complements Baidu's partnership
with China Telecom.

Tuesday, October 13, 2009

Baidu Union Promotion

Baidu is adding a new service,
"Baidu Union Promotion" ("Wangmeng Tuiguang"),
on October 13 to the professional version of its bid
ranking system, "Phoenix Nest." The new service
assists advertising clients in displaying their text,
image or flash ads on the 300,000 websites of
Baidu's advertising alliance Baidu Union, and allows
advertisers to activate or inactivate the function for
each individual ad plan that they have created in the
professional system. By default, the service is enabled.

Moving into B2C

Baidu has a new channel on its ecommerce site,, "Ming Pin" (meaning "brand"),
the URL being

It supports payment on delivery, and refunds
with an allowed time of 7 days.

Monday, October 12, 2009

Deutsche Bank downgrades to Hold from Buy

Price target reduced to $411 from $426 by Alan
Hellawell. Hellawell says the China-based
Internet search engine company’s stock price
“has accurately factored in near-term catalysts
and potential for upside is limited.” The analyst
adds in a research note that an “extensive round
of channel checks” ahead of Q3 results with leading
ad brokers and consultants finds that the company
may have met the low end of prior Q3 guidance.
“We believe scope for surprise in average ad spend
and margins to be limited,” he writes.

Saturday, October 10, 2009

Analyst action: CS, CLSA, Citi

Credit Suisse reiterates underperform, raising price
target from $245 to $290.

Credit Lyonnaise raises PT to $480, in a co-ordinated
move with Citi, which raised its PT to the same number.
These are the street-high estimates as of now.

Wednesday, October 7, 2009

Monday, October 5, 2009

Oppenheimer comments from last week

BIDU is expected to report 3Q in mid-October.
We expect revs of $188M (high end of $184M-189M
guidance), above consensus of $186M, led by strong
growth in spend per customer. We expect GAAP
EPS of $1.80 vs. cons. of $1.77. Our checks suggest
meaningful growth in search, esp. FMCG
(incl. pharma/healthcare), a key segment for
BIDU. Based on CR Nielsen's stats, 2Q overall
ad spending was $22Bn (+17% Y/Y, +23% Q/Q).
However, investors are likely to focus on FY10
estimates, which mgt implied are aggressive vs.
current trends. We raise our '10 revs/EPS by
9% (+40% Y/Y)/16% (+43% Y/Y), respectively
on improved economic and ad spending outlook,
but are below consensus by 1% (+42% Y/Y)/
1.7% (+46% Y/Y), respectively.

Thursday, October 1, 2009

B2C initiatives

Baidu is creating a B2C online shopping partnership with almost
100 SMEs. The "Morning Star 100" project provides B2C search
sales services to the businesses.

Separately, the company has added a B2C e-commerce
platform to, called the "Window of Japan".
It provides items from Nissen's e-commerce subsidiary,
Navibird, sold through their online retail website As the name implies, the site is aimed at
tapping into China/Japan trade.