Baidu (NASDAQ:BIDU) comfortably exceeded Wall Street expectations in its Q3 2011 results yet again,  posting an 85% growth in its online advertising business. Although Google (NASDAQ:GOOG) has managed to renew its license to operate in China, low internet penetration in the country should ensure ample opportunities for Baidu to expand further.
Baidu Moving Towards Increased Personalization
One of the key developments in Q3 was the increased customization of Baidu’s homepage, personalized to the user’s online preferences.  This alone can provide a significant upside to user engagement. Given that Baidu’s Chinese market share stood at over 78% for the quarter,  increased per capita page views should help the company further in its steep top-line growth. Q4 can also be helped by the fact that during the holiday season, advertisers’ propensity to spend would also remain high.
The renewed challenge for Baidu however, would be to counter Google. The global search giant has got back its license to operate in China,  having operated largely out of Hong Kong for the past year or so since the very public falling out between Google and the Chinese government. Baidu’s increased search dominance in China is bound to keep the government on its toes as well, who are already promoting rivals such as Goso.cn.
We have a revised price estimate of around $140 for Baidu’s stock, which is roughly the same as the current market price. Our revision takes into account the change in revenue and margin forecasts, as well as a change in the company’s net cash/debt position.Notes: