Baidu (NASDAQ: BIDU), the Chinese search engine giant, is all set to announce its Q3 2013 earnings today after market close. Ahead of the earnings call we take a look at the company’s past performance, current valuation multiples, its earnings history and our expectations.
The company has had a phenomenal run in the last four quarters growing its revenues at an average rate of 45% Y/Y every quarter. However the growth rate has been dropping as the revenue base has increased substantially over the last few years. In Q2 2013 the company had quarterly revenue of $1.23 billion compared to $528 million in Q2 2011. The table below compares the Y/Y revenue growth rates of Baidu and Google for the last 6 quarters.
The company has historically had higher profit margins compared to Google. The table below compares the current valuation multiples of the two companies and the profit margins they currently enjoy. One look at the price-to-sales (P/S) multiple will show Baidu as being expensive. However considering the current growth rate and the higher profit margins which Baidu currently has makes the price-to-earnings (P/S) multiple a more valid multiple to compare the two companies. The higher profit margins and faster growth rates now justify the slightly higher price-to-earnings multiple of Baidu. The table below shows the operating margins and current valuation multiples of the Google and Baidu.
The quarter had also seen the company acquire 91wireless, a web app developer. Baidu also signed a definitive agreement to buy a 59% stake in Nuomi, the deals provider portal owned by Renren. The company also launched total view the first 3D mapping service for Chinese market.
Baidu's Earnings History
The company has issued Q3 2013 revenue guidance in the range of $1.42 billion to $1.46 billion. The midpoint of the guidance, at $1.44 billion represents close to 45% Y/Y growth rate over Q3 2013. According to streetinsider.com the company has beaten earnings estimates in 7 out of the last 8 quarters. The company has topped revenue estimates in 6 out of the last eight quarters. The current earnings estimate for Q3 2013 $1.42 (8.65 CNY).
The company has had a phenomenal run over the last two years. However the Q3 2013 guidance is a stiff target and topping analyst’s current revenue estimates could be a challenge for the company. The critical numbers to watch out for are the operating profit and net Income margins for Q3 2013. A change in the profit margins will have a severe impact on the earnings of the company and could lead to an immediate pullback/bull run in the stock price depending on which way the margins move.
To see Baidu’s current stock price, please click here: (NASDAQ: BIDU)