Burned by Baidu

China's dot-com darling is a bit of a dud after posting first-quarter results.

Shares of Baidu (NAS: BIDU) are trading lower after delivering ho-hum financials and serving up weak top-line guidance for the current quarter.

China's leading search engine is still a speedster. Revenue climbed 75% to $677.1 million. There was a 17% increase in advertisers, with the average sponsor spending 49% more than last year. Earnings rose 76% to $0.85 a share. When you factor in the appreciating yuan over the past year, Baidu's results are actually up better than 80% for stateside investors.

However, analysts were targeting a profit of $0.84 a share on $677.4 million in revenue. In other words, the Internet specialist missed slightly on the top line and just beat out the pros on the bottom line. Still, Baidu has now landed ahead of Wall Street profit expectations for 12 quarters in a row.

Wall Street isn't very forgiving when it comes to premium-priced growth stocks with mixed results, but the problematic part of Baidu's report is its guidance. Now that the seasonally sleepy first quarter is out of the way, analysts were banking on $860.2 million in revenue. Baidu's range -- calling for a top-line showing of $847 million to $867 million -- translates into a midpoint of $857 million that's short of where the pros were perched.

It would be a relief to write off Baidu's guidance as coming from a company that routinely undersells its true potential, but Baidu's top-line guidance for the first quarter back in February called for $666.5 million to $688 million in revenue. Baidu actually landed just shy of the midpoint.

Clearly, no one is immune to slowing economic growth in China. Then again, it's hard to dismiss a company expected to grow its high-margin revenue at a 56% to 60% rate this quarter. The good news for opportunists is that the sell-off has dropped Baidu's stock down to the point where it's trading at a 2013 earnings multiple in the high teens.

Investors rarely get a chance to buy proven Chinese growth so cheap. SINA (NAS: SINA) is fetching a 2013 profit multiple that's roughly twice what Baidu is fetching, and leading social-networking operator Renren (NAS: RENN) isn't even expected to be profitable next year.

Yes, Baidu deserves to be marked down for its top-line weakness, but in the end you have to feel sorry for investors cashing out at these historically low multiples.

Bullish on Baidu
A bullish call on Baidu has served me well on Motley Fool CAPS over the years. True to the CAPScall initiative, I'm not going to give up on it now. Baidu has soared 1,529% since I recommended it to Rule Breakers newsletter subscribers six years ago, but now it's time to discover the next Rule-Breaking multibagger. It's a free report. Want it? Get it.

At the time thisarticle was published Motley Fool newsletter serviceshave recommended buying shares of Baidu and SINA. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizcalls them as he sees them. He owns no shares in any of the stocks in this story and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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