Baidu: Next Stop $75?

Before you go, we thought you'd like these...
Before you go close icon

There isn't a lot of faith in Baidu these days, and the latest skeptic to voice his concern is Maxim Group analyst Echo He.

He is slashing his profit targets on China's leading search engine. He now sees Baidu earning just $4.87 a share this year and $5.87 a share come next year. His earlier modeling resulted in a rosier forecast for $5.15 a share in 2013 and $6.29 a share in 2014.

He fears that margins will continue to contract. The growing momentum of Qihoo 360 is forcing Baidu to seek growth through its AdSense-like Union program, and serving up contextual ads on third-party websites doesn't generate the kind of margins that Baidu can drum up when search traffic originates on its owned sites.

It's certainly true that Baidu's bottom line isn't growing as quickly as its revenue these days. Analysts, on average, see earnings per share climbing a mere 4% this year despite projecting a 36% top-line surge.

It may be tempting to compare this to the situation at global leader Google -- where estimated earnings growth this year of 15% is dwarfed by the 41% spike in projected revenue -- but that's not the same thing.  

Google's revenue is padded by the Motorola Mobility acquisition. The earnings growth target at Big G is a fairer representation of its organic growth. 

Another big difference between Baidu and Google is that Wall Street profit estimates of 2013 have been rising at Google in recent months. Baidu trackers continue to talk down the former dot-com darling's prospects. 

Hosing down expectations isn't a China thing. Qihoo 360's income targets have been inching higher in recent weeks. 

The good news for Baidu shareholders here is that the stock is pretty cheap for a company that is still growing. He's own $75 target prices Baidu at less than 13 times his lowered profit expectations for next year.

Even with margins under pressure for what He believes will be the foreseeable future, there is still growth to be had in China's rapidly evolving Internet experience. Baidu may have its hands full these days, but the stock's unlikely to stay anchored in the double digits as long as growth continues moving in the right direction.

The titans of tech
It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

The article Baidu: Next Stop $75? originally appeared on

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu and Google. The Motley Fool owns shares of Baidu and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

People are Reading