Tuesday, October 27, 2009

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

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