Chinese Internet search company Baidu.com ( BIDU) will report Q2 2011 earnings on July 25 after the market closes. For the quarter, I estimate Baidu generated $508.6 million revenue (up 36.7% Q/Q) and $0.66 GAAP EPS, above management guidance of $493.3-503.9 million and consensus of $502.03 million/$0.65. I attribute the strong growth in Q2 to favorable seasonality; Baidu's successful nationwide marketing campaign conducted from late April to June; and the steady growth of the Phoenix Nest advertising program. For 3Q11, I expect Baidu to generate $584.9 million revenue, up 15% quarter-over-quarter. The deceleration in sequential growth is mainly due to the tougher comparison against Q2's high revenue base. As a reference, Table 1 shows historically Baidu's sequential growth in Q3 was in the range of 15% to 28%, with an average of 21%. From 2008-2010, the sequential growth for the quarter was 16% on average. I forecast that Baidu's Q/Q growth will slow down further in 4Q11 to a modest single-digit percentage gain because of weak seasonality. I believe investors should focus on three factors: Guidance, margins, and new products. Historically, when Baidu reported earnings for any quarter, its next-quarter revenue guidance has heavily impacted the stock's next-day performance following earnings releases (Chart 1). Based on my observations, the market is assuming relatively flat profit margins for Baidu in Q2 vs. Q1. Any surprises on this front will likely cause significant moves in the stock price. To sustain its shares' high valuation, which reflects investors' high expectation for future growth, Baidu has to announce exciting new products and provide positive updates on recently launched products. For this quarter, investors should pay special attention to management's comments on the newly launched New Phoenix Nest, Hong Media, and Baidu Browser, as well as updates on online video Website Qiyi.com. | 
盘后狂涨 - xiaochong2003 07/25/11 (137)
