Expecting strong Q1 results and Q2 guidance. Chinese search engine Baidu.com (BIDU) is reporting 1Q10 results on April 28. For the quarter, I estimate Baidu generated $183 million revenue and $1.57 GAAP EPS, above management guidance of $176-181 million. For 2Q10, I forecast Baidu will grow revenue by 30%-40% quarter-over-quarter, thanks to strong seasonality and market share gains after Google (GOOG) exited China mainland. As a reference, Table 1 shows Baidu's historical 2Q sequential growth was in the range of 35%-53%, primarily driven by advertisers ramping up spending after Chinese Near Year. Based on these data points, I expect Baidu management to give strong revenue guidance for Q2.
Investors have overestimated Baidu's traffic market share gain since March 22. I believe current market consensus is that Google's Chinese search engine has lost most of its traffic since it started redirecting traffic from Google.cn to Google.com.hk on March 22. Such optimism has been built into Baidu's current stock price following recent estimate changes and target price raises by investment bank analysts. In fact, many investors have not noticed that traffic to Google.com.hk has grown significantly since the redirection. Such strong growth is evidenced by data from Net Applications and Alexa. This trend is also confirmed by my finding that the aggregate traffic to Google China's competitors (Baidu, Soso, Sogou, Youdao) has only grown slightly since March 22. Baidu is certainly benefiting from Google's exit, but so far most of the benefits have come from monetization (due to increased pricing power) instead of traffic.
Disclosure: No positions
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