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.