Baidu Reports Solid Q1 2014

  • Baidu met the revenue guidance and beat EPS estimates.
  • Profit margins contracted in line with expectations.
  • Strong revenue guidance for Q2 2014 makes the stock even more attractive.

Baidu Reports Solid Q1 2014

Chinese online search juggernaut Baidu (NASDAQ:BIDU) shook off fears that a weak Chinese economy could ruin its great run, as it posted yet another great quarter. For Q1 2014, Baidu met the higher end of its revenue guidance, as profitability remained healthy despite a contraction in profit margins. Baidu closed the earnings con-call with a strong revenue guidance for Q2 2014 among other positives.

Baidu Q1 2014 Financial Performance and Key Metrics

Baidu’s Revenue Guidance for Q1: RMB 9.24 – 9.52 billion

Analyst EPS estimates for Baidu: RMB 5.97 ($0.96)

Baidu reported a revenue of RMB 9.49 billion ($1.53 billion), clocking a growth of 59.1% over Q1 2013 (Y/Y), just under the higher end of its guidance. The company’s revenue continued to grow at a stellar pace to rebound to its highest levels in the last 8 quarters.

The company reported an EPS of RMB 7.21 ($1.16) to beat EPS estimates by a whopping 20%+.

Baidu Revenue and profit trend

In Q1, the company reported operating and net income of RMB 2.37 billion ($381 million) and RMB 2.54 billion ($407.8 million) respectively. As we had indicated in our Q1 2014 earnings preview for Baidu, profit margins did contract at both, operating and net levels to reach their lowest levels.

Profit margins have been on the decline since 2013, as Baidu has continued to make investments targeted at growth. However, profitability remained healthy with operating profit margins and net profit margins coming in at 25% and 26.7% respectively.

Baidu generated net operating cash flow of RMB 3.6 billion ($581 billion) or 38% of revenue to end the quarter with cash and cash equivalents worth RMB 39.67 billion ($6.38 billion).

As expected, the following costs remained at elevated levels in Q1 2014:

Traffic Acquisition Costs (TAC) at 12.4% marked an increase, both sequentially as well as Y/Y. The increase came primarily due to Baidu’s promotion of its text to speech news reader and an increase in contextual ads across its ad-network.

Content costs also marked a sequential and Y/Y increase, driven by content licencing costs pertaining to its online videos site iQiyi.

Aggressive promotion of mobile products saw Selling, General and Administrative (SG&A) costs jump by 136% Y/Y, driven largely by costs from mobile app pre-installations on smartphones.

To boost advertiser ROIs and Baidu’s ad-revenue thereof, Baidu has introduced a new feature on its online ad-space buying/bidding platform which will allow advertisers to bid for ad spaces that target audiences in specific cities.

Baidu also clarified its intent to stay out of the hardware space, re-iterating that software is its forte. It will continue to tie up with hardware manufacturers to promote smart devices, some of which we had covered in our Q1 2014 earnings preview.

Baidu’s Growth on Mobile

Baidu continued to see growth in mobile search traffic and mobile search traffic monetization. It expects to see mobile search traffic overtake PC search traffic later in 2014. The company also introduced features to improve personalization of its search app. Baidu now has 160 million daily mobile search users, translating to a 23% jump over 2 quarters.

Baidu has integrated its recently launched online payments service ‘Baidu Wallet’ into its search app and will continue to leverage its strong grip in the maps space with the integration of group buying, travel and hotel listing services. Baidu’s maps has also grown in popularity to reach 190 million monthly mobile users, recording a 30% sequential growth.

Baidu Q2 2014 Guidance & Estimates

Baidu ended the Q1 earnings con-call with a strong revenue guidance for Q2 2014. Baidu projected a revenue growth of 56% - 60% pegging revenue guidance at RMB 11.82 - 12.11 billion ($1.90 - 1.948 billion)

Q2 2014 Analysts’ consensus estimates:

Revenue - Average: RMB 11.55 billion ($1.85 billion) Range: RMB 10.96 - 12.13 billion ($1.76 – 1.95 billion).

EPS - RMB 7.89 ($1.27) a share.

Baidu Valuation

At its current price of $159.74, Baidu trades at higher P/E and P/S multiples when compared to Google and Yandex. However, over a 3 year period ranging from FY 2011 – FY 2013, it has consistently outperformed its peers in the online search industry.




Price/Earnings (P/E)




Price/Sales (P/S)




Q1 2014 Revenue Growth




Q1 2014 Net Profit Margin




Baidu’s stock price has fallen by over 18% from its 52 week high earlier this year. With the solid Q1 performance and a strong future guidance of 56 - 60% for Q2 2014, we think the stock is attractive at its current valuation.

See our Analysis and Score for BaiduGoogleYandex

To see Baidu’s current stock price, please click here: (NASDAQ:BIDU)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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