The battle continues, mostly in mature and intelligent fashion between the longs and shorts regarding Baidu at Yahoo Message Boards. This is very rare as Yahoo message board is usually inhabited by traders or investors who don't know what they are doing or annoying pumpers and dumpers. I normally do not post anything at the Yahoo message boards but Baidu site offers interesting view points from both sides. I think that if anyone is interested in taking either a short or long position in BIDU, it would be recommended that they check out that site.
The cases thus far presented by Longs:
1. BAIDU represents good valuation at current stock levels.
2. BAIDU is a buy out candidate by Google, Yahoo, or MSN.
3. BAIDU's 400% EPS rise in recent earnings report shows that the company is growing.
4. Forward revenue guidance short fall is due to Chinese New Years coinciding with Q1.
5. BAIDU is gaining market share in China which represents 4.3% of search market versus Google's 0.5%.
6. Short squeeze is imminent.
The case thus far presented by Shorts:
1. three straight quarters of declining revenue and further revenue guidance below expectation shows that BAIDU cannot sustain their market valuation.
2. Chinese stock market is over heated and some form of correction or crash might be imminent.
3. 400% EPS this quarter earnings report is the result of one time tax credit.
4. BAIDU has declining advertiser base and failed to increase that base at 6000 customers.
5. Market penetration into internet search is at an early stage with very low early adoption rate below 8%.
I am trying to be objective here. But right now, without revenue growth, BAIDU stands to see price deflation in the near term with midterm outlook murky. If BAIDU can improve future revenue growth, then their current valuation might be justified. But until they do, I don't see why this stock should trade above Google's valuation. Spate of down grades last week will be a tell in the coming weeks. I believe that Citibank, Goldman Sachs, might have began dumping this stock at $130's. I believe that the strength of this stock won't reveal itself until we test the 200 EDMA which is near $93 (range $86 to $97). If no support is found there, we will see new support at $68 level. Remember 200 EDMA is usually where the big money institutions step up and buy, if they consider the stock to be of good value. BAIDU will not be fairly valued at the current revenue growth projections and 3 quarters of declining revenue until $58 per share.
I just don't see much upside at these levels. This is a broken stock for the short term. It may be a buy at the $93 level, if the 200 EDMA holds and the stock rebounds from that level on strong volume.
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2 comments:
it seems amazing how a stock gets driven down when they say one quarter may be slow as compared to last quarter.It seems if I put this into perspective in baseball terms.The last 3 months I hit 400,which was way above what Wall street thought I would hit.I now think in the next three months I am estimating I will hit 390.Now everyone is saying I stink.If possible tell me another search engine besides Google who is doing or will do better.I not even sure Google will do better
I see your point and understand your analogy. But we are not talking about baseball here. We are talking about a company that is generating, at the current moment just under $200 million per year with a market capitalization of $3.58 billion dollars. The estimates for next year is expected to be a tad over $300 million dollars. Baidu is growing at a tremendous rate and that is why they get the benefit of higher multiple than any other search engines in the world, including Google. But, when they make a foreward looking statement that states that at least 2 quarters will be flat due to "New Years" and other issues, including planned penetration into the Japanese market, Wall Street will begin to discount the share prices because it is already looking ahead by 8 to 12 months. Slowing revenue stream (stated by Robin Li himself)equals slowing growth in Wall Street. Perhaps this issue will be short lived. But Baidu has a hefty expectation to live up to. It is hard at the top of the valuation chain.
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