Several firms are commenting on Baidu.com (NASDAQ:BIDU) this morning after the company issued in-line results and weaker guidance last night:
- RBC Capital is upgrading its rating to Outperform from Sector Perform, while lowering target to $361 from $400 telling investors to look through the 1Q08 guidance and focus on what is important. RBC believes 1) the long-term investment thesis remains intact, 2) the company continues to dominate the Chinese search market, and 3) over the longer-term should add another growth driver as it monetizes its nonsearch traffic through display and other formats. 1Q08 guidance was lower than expected, but as we exit 1Q and enter 2Q, very few companies on the Internet enjoy every secular, macro, and seasonal factor working in their favor, and fewer have Baidu's growth profile.
- Citigroup notes that early last month when they took Baidu off their Top Picks list and downgraded it to Hold, their concern was primarily that incremental spend on Japan and C2C would hit margins, but they were also concerned about the potential of slowing revenue growth as well. Some of those fears came to fruition yesterday as Baidu guided for between US$25m and US$35m in "P&L" impact from Japan+C2C in 2008. Combined this with disappointing revenue guidance for 1Q, and the firm expects that Street estimates have to come down.
The headline EPS beat is US$0.17, but the firm estimates that US$0.20-0.23 of this is due to: 1) a one-time tax rebate; 2) positive current effects from RMB appreciation; and most significantly, 3) the company's under-spent by ~US$5m on Japan vs. their 4Q guidance (and which is offset by the huge 2008 Japan spend guidance). Maintains Hold and $350 target.
- Goldman Sachs is lowering their target to $280 from $310 saying they believe the law of large numbers, rather than snow storms, could be the primary reason why Baidu is guiding for a decelerating y-o-y growth rate in 1Q08 versus 4Q07.
Notablecalls: Looks like RBC Capital's Stephen Ju was right on the money when it came to Q1 guidance. He was wrong on the sentiment side, though. And so was I. BIDU ended up 20 points in after market despite a 20+ pt run during market hours.
Which now pegs the question: Is there any upside left here?
With GSCO cutting their target to $280 and most of the EPS upside coming from non-operating sources, it's sure a stretch here.
I suspect shorting around $280 this morning represents a good risk/reward scenario.
