Don't let Yahoo!'s ho-hum earnings last night eat away at you heading into tomorrow night's third-quarter report out of Baidu (Nasdaq: BIDU).

China's leading search engine is a high-margin speedster gaining market share in the world's most populous nation. It's everything that Yahoo! is not -- with the lofty valuation to boot.

Baidu's report should be another winner. Analysts expect revenue to soar 78% to $333.3 million, with earnings nearly doubling to $0.41 a share.

It's ambitious. It's aggressive. It's probably too low.

Baidu has a habit of making even the most upbeat analyst come off looking like a low-baller. Let's see how Baidu has held up on the bottom line over the past four quarters relative to Wall Street's consensus targets.


EPS Estimated

EPS Actual

Q3 2009



Q4 2009



Q1 2010



Q2 2010



Source: Yahoo! Finance.

If you fell asleep during that history lesson, let's dive into current events.

  • Baidu has been gaining market share since Google (Nasdaq: GOOG) staged a partial retreat earlier this year.
  • Phoenix Nest -- Baidu's paid search update that emulates Google's globally successful and ethically superior model -- continues to gain traction. A Pacific Crest analyst recently bumped his price target on the shares, from $80 to $140, largely on the potential of the Phoenix Nest makeover.
  • China's Internet penetration rate is still low, so there's plenty of upside.

Baidu isn't cheap. Investors don't get markdowns on winners. Shares of the company that commands nearly two-thirds of all searches in China fetches a sobering 46 times next year's projected profitability. New media darlings SINA (Nasdaq: SINA) and (Nasdaq: SOHU) command year ahead multiples of 26 and 14, respectively.

However, SINA and aren't growing nearly as quickly as Baidu. Google has also taught us that the most lucrative niche in the realm of online advertising is paid search, a market that Baidu totally dominates in China.

Check back on Friday for a complete dissection of Baidu's results, but when you hear that Baidu landed well ahead of Wall Street guesstimates -- just remember where you read it first.

How far will Baidu fall if Rick is wrong and earnings don't live up to expectations? Share your thoughts in the comment box below.

Google is a Motley Fool Inside Value recommendation. Baidu, Google, and are Motley Fool Rule Breakers selections. SINA is a Motley Fool Stock Advisor pick. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz has been a fan of China's growth stocks for several years now, even though he does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.