Analyst take on Q1 2009

• Pali Research analyst Tian Hou
today upgraded the stock to Neutral from Sell,
noting that with the company’s launch of its
Phoenix Next advertising system, “BIDU is
making a proactive change to eventually migrate
from its current model to a Google-like model,”
Hou writes. “We view this as a significant step to
reduce the risk associated with its current model,”
which features an unclear mix of paid and natural
search results. Hou also notes that Baidu spent
heavily on advertising on China Central TV’s
Chinese New Year gala, in what the analyst views
as “a peace offering.” CCTV had previously run a
series of reports on questionable business practices
on the site.


• Needham’s Mary May this morning likewise
upped the rating to Hold from Sell. “Trends
suggest that conditions have improved significantly
over the past several months, and at least for now
advertiser activity is on the mend,” May writes. May
adds that “it appears as though some of the
regulatory challenges the firm faced during the past
several months is behind us, and management will
be able to focus on running the company.”


• Bank of America/Merrill Lynch analyst Eddie
Leung today repeated his Buy rating on the stock,
while boosting his target price to $258, from $147.
He writes that the rollout of the Phoenix Next keyword
bidding and matching system “appears to be smooth.”


• Piper Jaffray analyst Gene Munster likewise
  
repeated his Buy rating and upped his target to
$250 from $246, asserting that “shares of BIDU will
trend higher given March results and June guidance
indicate fundamentals are intact and China search
opportunity remains in its early stage.”


• Bernstein Research analyst Jeffrey Lindsay
repeated his Outperform rating and upped his target
to $260, from $230. “We think the growth trajectory
for Baidu is still higher than many expected at this
point,” he writes. Lindsay also writes that the
company is “more than holding share against Google,”
and that both of them are mopping up against other
China paid search sites.


• By contrast, UBS analyst Wenlin Li today
repeated his Sell rating and $150 price target.
Li assets that there were some issues with the quarter,
in particular lower gross margins and rising traffic
acquisition costs. Li also contends that Phoenix Nest is
likely to be earnings dilutive in the short term, and that
the impact on fundamentals will depend on how long it
takes to transition to the new system.