Wednesday, February 10, 2010

Analyst recommendations: Details


Ming Zhao sees beat-and-raise (beat estimate and
raise guidance) as bullish. Record cash flow generation
in last quarter. Transition to Phoenix Nest better than
expected, especially for large customers. Also,
e-commerce is a significant driver. A secular growth
story in the Chinese Internet space.

Bank of America/Merill Lynch (BofA/ML)

Eddie Leung: Positives - PN (Phoenix Nest), Google
incident, managing costs to benefit from op leverage.

EPS estimates (RMB)
2010 67.87
2011 102.12
2012 147.69

Projected P/E
2010 43.75
2011 29.09
2012 20.11

Pacific Crest

Steve Weinstein said Baidu is well-positioned to
benefit from growth in Internet searches and China's
economic development. He raised his 2010 earnings
and revenue estimates.

Weinstein added that Baidu should continue to do well,
especially if Google leaves the Chinese market. At the
same time he downplayed the impact of Google
on Baidu's guidance for Q1 2010.

Deutsche Bank

"The earnings surprise was largely due to 1) lower than
expected SG&A and 2) other income of RMB28m, which
we believe is related to govt subsidies...Active advertisers
in 4Q09 totaled 223k, up 13% YoY and 3% QoQ. We believe
the sequential growth proves that Baidu new customer
acquisition was smooth in Oct and Nov...we think margins in
1Q10 could improve YoY, given the substantial marketing
campaign launched in 1Q09 to recover brand image."

Credit Lyonnaise SA (CLSA)

Elinor Leung (Hong Kong): "If I was a Google customer,
I would want to start looking for alternatives to plan for
my 2010 advertising budget. I may want to hedge my
bets in case Google really wants to leave the country."

Piper Jaffray

Vivian Leigh: "Last night, Baidu delivered above-expectation
December quarter results and March quarter guidance. The
company guided the midpoint of March revenue to $178M,
above the Street at $170M. Baidu management mentioned
this guidance does not factor in the potential revenue from
Google shutting down, but suggested they expect to
benefit if shuts down."

Morgan Stanley

Richard Ji: "What we liked: 1) Paying customers and
ARPU (average spending per customer) rose
13% and 24% YoY each. Notably, Baidu's total paying
customers account for less than 1% of total SMEs in
China. 2) Sales from Baidu Union outpaced its organic
paid listing sales (+50-60% YoY, vs 20-30%, on our
estimates). 3) Baidu has attracted more large corporate
customers for paid listings, who often spend significantly
more than SMEs. 4) Baidu offered strong
1Q2010 guidance, with sales likely up 48-52% YoY...

What concerned us: 1) Japanese venture trimmed Baidu's
earnings by 10%. 2) ARPU dipped 3.4% QoQ, affected by
the customer transition to Phoenix Nest.

Estimates (EPS, diluted)
2010: $8.97 (up 9%)
2011: $12.53 (up 11%)
2012: $15.32

2010 : $893 mln (up 7%)
2011: 1.287 bln (up 8%)

Bear case PT: $330.1
Bull case PT: $589.2
Base case PT: $459.1

Goldman Sachs (GS)

James Mitchell: "Solid guidance for a seasonally weak
quarter suggests advertisers are responding positively
to the new bidding system, and consensus for 2010 and
2011 appears materially too low. Expenses exceeded
estimate but do not unduly concern, given several
non-recurring items in 4Q2009 (office relocation,
10th anniversary celebration, Baidu Professional

2010 EPS: raised to $10.71 from $10.59
2011 EPS: raised to $16.72 from $16.16

Kaufman Bros

Aaron Kessler: "BIDU reported 3% upside to
4Q revenue operating income...Gross revenue of
$185M (40% Y/Y) vs. Street at $180M, due to
better-than-anticipated adoption of Phoenix Nest...
1Q10 revenue guidance of $176M-$181M (down
2%-5% Q/Q) vs. Street at $169M, due to better
4Q and PN transition...Increase 2010 Revenues
and PF EPS by 4%." That is $920 million gross
revenue (earlier estimate of $888 million) and
pro forma EPS of $9.55 (earlier $9.15) for 2010.
For 2011, he raised his projections to $1.275 billion
and $13.47 from $1.162 billion and $13.02,

Standard and Poor (S&P)

BIDU posts Q4 earnings per ADS of $1.80 vs.
$1.22, $0.13 better than our forecast. Revenues rose
40%, above our 34% estimate, reflecting successes
related to a key technology transition. With this largely
completed, related expenses should normalize. BIDU is
also pursuing a variety of promising growth opportunities,
in our view. We are raising our '10 per-ADS profit estimate
to $9.19 from $7.84, and setting an '11 forecast of $12.05.
Based on revised peer analysis, and accounting for a favorable
competitive backdrop, we are raising our 12-month target
price to $560 from $500.

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