SINGAPORE (July 28): Nasdaq-listed “Google of China” Baidu which has a secondary listing on the SGX is getting hammered again today after it missed analysts estimates. The stock opened down US$27 ($37) or nearly 14% or just over US$ 170 when trading opened in New York this evening Singapore time.
Once the darling of investors the company which part of the trio of Chinese Internet plays that global investors follow called BAT —for Baidu, NYSE-listed Alibaba Holdings and Hong Kong-listed Tencent — has been a dog of a stock lately. Though it is listed on SGX the stock is hardly traded in Singapore except around quarterly earnings reports like it was today. Sometimes weeks go by, even months, and not a single Baidu trade is executed on SGX.
Though Chinese Internet search engine’s profits rose 3.3% year-on-year in the April-June second quarter, they clearly missed analysts estimates. Quarterly results announced this mornings were soft but the guidance for next quarter was even softer notes Chi Tsang, HSBC’s Asian Internet analyst in Hong Kong.
The big issue was Baidu operating margins that were 360 basis points or 21% lower than estimates mainly due to higher-than-expected content costs as well as higher research and development spendings. That meant Chinese search engine giant’s earnings were 10% below most analysts estimates.
But a much bigger issue with investors is likely to be the disappointing guidance the company gave for the current July-September Third Quarter. The management expects revenue to grow 34% to 37% year-on-year, compared to consensus estimates of over 39% revenue growth in the quarter. “Baidu no longer sells keywords to its competitors in group-buying and other owned and operated online-to-offline or O2O verticals, which is putting slight pressure on revenue growth,” notes HSBC’s Tsang.
Tsang still has a Buy on Baidu stock but recently cut his target price from US$256 to US$231. The stock is trading is 32 times this year’s earnings and 21.9 times next year’s estimated earnings. Even though full monetisation of Baidu’s online-to-offline verticals are are some years away, Baidu's core search business is trading at 12 times next year’s earnings with 25% annualised revenue growth, he notes.
But with FANG stocks — or US Internet darlings like Facebook, Amazon, Netflix and Google — starting to look toppish, further selloff in shares might just be the thing that helps sparks interest in trading activity in Baidu stocks in Singapore.