4 Reasons Baidu Should Close Higher Next Week

It's so easy to hate on Baidu (Nasdaq: BIDU  ) these days. China's economy is slowing. The shift to mobile from desktop poses more threats than opportunities for paid-search providers. And now, for the first time since Google (Nasdaq: GOOG  ) staged a partial retreat out of China, Baidu has a company legitimately nibbling away at its market share.

With earnings around the corner -- Baidu reports on Monday night -- is it time to sell or wait this rough stretch out on the sidelines? Well, let me spell out the reasons I think China's leading Internet company is likely to move higher in the coming days.

1. Baidu is still growing at a heady rate
Despite the bearish sentiment festering in a growing number of analysts, Baidu is still a speedster.

Wall Street sees revenue for the third quarter climbing 53% to a cool $1 billion. Earnings should grow slightly faster, soaring 54% to hit $1.29 a share.

Does this seem like the kind of company that growth investors should be shying away from? Even if we look out to next year, analyst targets stand at a still healthy 33% spurt on the bottom line, with a 40% top-line pop.

Yes, that's decelerating growth, but keep in mind that even 33% in earnings growth next year would find Baidu growing its profitability twice as fast as Google's projected 16% clip.

2. Baidu has a history of surpassing expectations
All other things being equal, the stock should rally if Baidu simply matches the profit of $1.29 a share that the market's looking for. It would be a sigh of relief. The market will realize that the summertime emergence of Qihoo 360's (NYSE: QIHU  ) new search engine isn't much of an initial threat.

What happens if Baidu's net income clocks in even better than that?

It could happen. In fact, it's exactly what has happened in each of the past 13 quarters. The trend suggests that Baidu will stretch that streak to 14 quarters come Monday night.

3. Qihoo 360, at best, is Bing
Remember when Microsoft (Nasdaq: MSFT  ) introduced Bing, and everyone started to wonder whether it had a shot at dethroning Google? We know the answer now. Bing had its first wave of novelty appeal, but Google continues to hold its commanding market share.

At the same time, Google and Bing have both gained market share over the past year. They're simply swiping attention from lesser players, and even if that wasn't the case, the sheer volume of searches performed grows at a pace where this story doesn't have to be about a single winner.

Likewise, a new Analysys International study shows that China's search engine operators experienced a 51% year-over-year surge in revenue, and Baidu's still dominant at 78.6%. Sure, the figure was was closer to 80% earlier, but the pie is growing so quickly that a slight slip is not much of a factor.

4. Mobile matters
The smartphone revolution is more of an opportunity than a threat. China Mobile (NYSE: CHL  ) -- the world's largest wireless carrier -- closed out September with a whopping 698.5 million customers. Even if many of those accounts are on older feature phones, the shift to smartphones is making computing more portable.

Until recently, mobile was seen as a challenge. The mobile screen is too small to monetize with a column of ads off to the side. Folks on mobile phones aren't interested in clicking on ads.

Well, that mindset is changing, and for that we can thank Facebook (Nasdaq: FB  ) .

"I think our opportunity on mobile is the most misunderstood aspect of Facebook today," CEO Mark Zuckerberg said on Tuesday night during the social-networking giant's conference call. "I believe that over the long run we're going to see more monetization per time spent on mobile than on desktop."

His thinking is that mobile users make more frequent visits to Facebook, and that there are ways to get sponsored spots in front of smartphone owners. Facebook's figuring it out, even though it didn't start monetizing mobile until March. Google -- facing the same challenge as Baidu -- still hit a new all-time high last month. If the opportunities exist here, they will definitely materialize in the larger and faster-growing Chinese market.

With Baidu's report on Monday night so much more likely to please than disappoint, don't bet against the former dot-com darling next week.

Betting on China
If you prefer a safer way to grab some overseas sizzle, a new report details three American companies destined to dominate the world. It's a free report. Want it? Get it.

There's also a premium report on Baidu that takes a close look at China's dot-com darling. The premium research comes with a year's worth of updates. Click here to check it out.

Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Baidu, China Mobile, Facebook, Google, and Microsoft and has options on Facebook. Motley Fool newsletter services recommend Baidu, Facebook, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2080778, ~/Articles/ArticleHandler.aspx, 7/25/2014 10:07:47 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement