Baidu’s Strong Growth Underwhelms 百度业绩持续强劲增长将投资者期望抬升过高

By newsdoug on February 17, 2012

When is 80 percent growth nothing to get excited about? When you’re Baidu (Nasdaq: BIDU), China’s leading search engine, whose latest earnings report featuring 82.5 percent revenue growth and a 77 percent jump in profit is being greeted largely with yawns from investors who have come to expect this kind of turbo-charged growth from China’s Internet star. (earnings announcement) Baidu’s outlook for the first quarter was equally upbeat, with the company forecasting revenue growth of about 75 percent for the current reporting period. Shareholders bid up Baidu stock by 2.5 percent after the report came out, a modest gain reflecting the fact that the results and the guidance were mostly in line with expectation. I’ve looked over the report and there’s really not much of note in there. The company continues to be a one-note story, with nearly all of its revenue coming from its core online advertising services, which were up 82 percent for the quarter. Growth in revenue per customer seems to be slowing, up just 5 percent from the previous quarter, perhaps reflecting the fatigue that customers are starting to feel at having Baidu continually squeeze them for more money. Of course, when your investors start to expect 80 percent growth from you each quarter, the biggest danger is that they will punish you when you start to post lower numbers, which is almost inevitable. Leading web portal Sina (Nasdaq: SINA) learned that lesson the hard way last year, when expectations for its incredibly popular Weibo microblogging site grew a bit too big, fueling a rapid rise in Sina’s shares, which then tumbled almost as quickly after Weibo ran into some regulatory obstacles and also showed signs of inability to quickly make money. (previous post) I still think China’s online ad market is due for a rapid slowdown later this year when the country’s current Internet bubble starts to burst. On top of that, some rival search engines are starting to gain some traction against Baidu, including Sohu’s (Nasdaq: SOHU) Sogou and perhaps more importantly Tencent’s (HKEx: 700) Soso, which seems to be gaining more momentum lately. All things considered, I wouldn’t be surprised to see Baidu’s turbo-charged growth fade somewhat by the end of this year, falling to the 50 percent level or perhaps even lower. When that happens, look for investors to punish its stock much the way they did to Sina last year.

Bottom line: Baidu’s continued turbo-charged growth has set investor expectations unreasonably high, with a slowdown that will deal a hit to its stock likely by the end of the year.

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