Baidu Looks Cheap Heading Into Earnings

Baidu (NASDAQ:BIDU) will announce its earnings for Q2 2012 on July 23. It is the leader in the Chinese online search space where it competes with the likes of Google (NASDAQ:GOOG) and some smaller local competitors. It generates most of its revenues from search and display advertising. Given Google’s tenuous relationship with the Chinese authorities and Baidu’s technological edge over its local competitors, it seems poised to continue to dominate the Chinese search space.

See our full analysis for Baidu

Mobile: The key to growth

The smartphone shipments in China, as in the world, have been booming in the last couple of years. Baidu is seeing a significant increase in mobile search volumes as users are increasingly searching for what they need from their Internet-enabled mobile phones. Thanks to Apple’s integration of Baidu in Chinese iPhones, and the launch of its own OS, Baidu Yi, we expect Baidu’s mobile search volumes to continue to increase in coming quarters.

Baidu is also working to improve its search technology, and provide better, faster and more personalized search results. Besides search, it is also working on several new initiatives like Baidu PostBar, Baidu Knows, Baidu Encyclopedia and various search verticals like video, image, news, maps, etc. With the Box Computing service, it aims to make the search experience more engaging. With offerings like the Baidu Application Engine and some cloud storage initiatives, Baidu is trying to create a complete cloud platform for developers, which could generate money through revenue sharing with developers monetizing their users by in-app ads, subscriptions or virtual item sales.

We expect to see more numbers which could indicate how Baidu’s various new initiatives are taking hold as well as how the shift to mobile search is impacting its earnings during the post earnings call. As usual, you can expect impressive growth in its revenue and other earnings metrics.

We expect search and display advertising to continue to account for most of Baidu’s revenues and almost all of its value. We currently have a $126 Trefis price estimate for Baidu, which stands nearly 10% above its market price.

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