There isn't a lot of faith in Baidu (BIDU +2.88%) these days, and the latest skeptic to voice his concern is Maxim Group analyst Echo He.
He is slashing his profit targets on China's leading search engine. He now sees Baidu earning just $4.87 a share this year and $5.87 a share come next year. His earlier modeling resulted in a rosier forecast for $5.15 a share in 2013 and $6.29 a share in 2014.
He fears that margins will continue to contract. The growing momentum of Qihoo 360 (QIHU +0.00%) is forcing Baidu to seek growth through its AdSense-like Union program, and serving up contextual ads on third-party websites doesn't generate the kind of margins that Baidu can drum up when search traffic originates on its owned sites.
It's certainly true that Baidu's bottom line isn't growing as quickly as its revenue these days. Analysts, on average, see earnings per share climbing a mere 4% this year despite projecting a 36% top-line surge.
It may be tempting to compare this to the situation at global leader Google (GOOG +2.81%) -- where estimated earnings growth this year of 15% is dwarfed by the 41% spike in projected revenue -- but that's not the same thing.
Google's revenue is padded by the Motorola Mobility acquisition. The earnings growth target at Big G is a fairer representation of its organic growth.
Another big difference between Baidu and Google is that Wall Street profit estimates of 2013 have been rising at Google in recent months. Baidu trackers continue to talk down the former dot-com darling's prospects.
Hosing down expectations isn't a China thing. Qihoo 360's income targets have been inching higher in recent weeks.
The good news for Baidu shareholders here is that the stock is pretty cheap for a company that is still growing. He's own $75 target prices Baidu at less than 13 times his lowered profit expectations for next year.
Even with margins under pressure for what He believes will be the foreseeable future, there is still growth to be had in China's rapidly evolving Internet experience. Baidu may have its hands full these days, but the stock's unlikely to stay anchored in the double digits as long as growth continues moving in the right direction.
