Saturday, August 20, 2011

Baidu Plunges, Tests 200-Day Average (Chart) *Chinese government criticisms spur sell off* BIDU

● Baidu Planet 

Baidu (BIDU) reported record-crushing Q2 2011 financial results on Monday, July 25, 2011


Baidu Inc. Baidu closed the week at $126.98 on Friday, August 19, 2011. BIDU was down -15.43% for the week, is down -19.16% for August, was up +12.09% for July, and is up an incredible +31.54% for 2011. BIDU is -22.74% below the all-time closing high reached on Tuesday, July 26, 2011 of $164.36. Baidu has dropped below the 20, 50, and 100-day averages and is currently testing the 200-day average. State-sponsored China Central Television has launched a series of criticisms and attacks on Baidu which has created investor uncertainty. Any potential negative impact will need to be resolved before investors will regain confidence (see more below).

S&P 500  By comparison, the overall market, the S&P 500, closed at 1123.53 for the week, and was down -4.69% for the week, is down -13.06% for August, was down -2.15% for July, and is down -10.66% for 2011. SPX is up +66.07% since the March 9, 2009 market cyclical low. SPX closed at a multi-year closing high of 1363.61 on Friday, April 29, 2011, the highest close since the June 9, 2008 close of 1404.05, and is now -17.61% below that peak. BIDU is vastly outperforming the overall market long-term since the March 9, 2009 market bottom and also in 2011. A review of the S&P 500 is here, S&P 500 Drops for Fourth Straight Week (Chart) *USA & global uncertainties weigh heavily*.

Baidu Fundamentals Baidu reported Q2 2011 financial results on July 25 and are reviewed hereBaidu Reports Record-Crushing Earnings! (Financial Charts) *Astonishing acceleration: EPS +52% QoQ & +95% YoY*. Previously, Baidu reported near-record Q1 2011 financial results on April 27, 2011, but the bar has been set high for Baidu in the world's largest Internet market. These financial results are reviewed and analyzed on this blog at the Baidu Financial Performance page. This was after record, and stellar, fourth quarter 2010 financial results reported on January 31, 2011.

Baidu News A summary of recent news and announcements are below in this post; others are posted on this blog.

Economic and Market News Information about the USA and world economies plus the USA financial system are posted at Boom Doom EconomyFinancial ControlsBaidu Planet, and Neo SolomonAdditional current commentary on both the overall stock market and economy is posted at Matrix Markets.

BAIDU DAILY CHART (click chart to enlarge)

Baidu Daily Chart Below is the BIDU daily chart since January 31, 2011 to illustrate recent price interactions subsequent to the gap up on the record Q4 2010 earnings reported January 31, 2011.

Noteworthy Closing Prices
Current Close: $126.98
2011 and All-Time High: July 26 $164.36
2011 Low: January 3 $99.73
YE December 31, 2010: $96.53

Baidu Chart Review
Intermediate Term Trend descending 25d avg greater than ascending 50d avg since 7-15-11, BIDU below both, tenuously bullish
Long Term Trend BIDU just above 10 month ema = 126.85, since April 2009, tenuously bullish
Key Resistance 2-11-11 prior high 130, 100d avg 140, 50d avg 141, 20 day avg 147
Key Support 200d avg 126, 2-23-11 low 116
Moving Averages below 20d, 50d, 100d avgs, continues above 200d avg
Uptrend Line well above, above since 1-13-10, not shown
Downtrend Line none significant, below recent all-time closing high
RSI 14 Day = 29.81 is very oversold, descending
RSI 28 Day = 45.26 is reasonable, ascending
MACD (12,26,9) = -2.67, descending, multi-year low was 8-8-11 (-3.19), multi-year high was 7-5-11 (+2.91) 
Volume very high 14.5M latest day, 50 day average = 10.1M
Price Earnings Ratio = lower 57.76, has been high 90s to low 100s since 2009 (Google Finance)
Market Capitalization = higher $44.31 billion (Google Finance)


Conclusion BIDU plunged with the equity markets but more so because of controversy in China. China Central Television (CCTV), which is Beijing state-sponsored media, has launched a series of criticisms of Baidu, including a lax advertising platform approval process which allows fraudulent websites, criticism of the bid ranking advertising system, and not policing message boards against slanderous remarks. CCTV has criticized Baidu before, along with other large Chinese Internet companies. CCTV has launched its own search engine recently. In addition, Baidu and other Internet companies are increasingly influential and gaining an increasing share of advertising revenue, including from CCTV. Fear of Baidu being subjected to anti-monopoly sanctions and other Internet restrictions resulted in a sell off of BIDU. Baidu earlier had earlier given up all the gains from the record-crushing Q2 2011 earnings reported on July 25. The bar has been set high for Baidu in the world's largest Internet market and investors are expecting Baidu to report more record financial results in future quarters. The latest Q2 2011 financial results are reviewed and analyzed on this blog at the Baidu Financial Performance page. The intermediate-term trend continues tenuously bullish and the long-term trend continues tenuously bullish.

Disclosure We sold our long BIDU position the week ending July 29 due to overall market uncertainties. We are still bullish on BIDU in 2011, but the risk due to the recent negative government rhetoric from state-sponsored China Central Television (CCTV) needs to mitigate first.

Baidu News A summary of recent news and announcements; others are posted on this blog.
● State-sponsored China Central Television has launched a series of criticisms and attacks on Baidu which has created investor uncertainty. Any potential negative impact will need to be resolved before investors will regain confidence.
● Baidu was #1 in China online advertising for Q2 2011 with a 28.7% market share, per Analysys.
● Alexa ranks in July as the #1 most accessed Internet site outside of the United States and #6 worldwide (Google is #1 in both categories).
● Reuters reported July 19 that there are now 485 million Internet users in China, yet the Internet penetration rate remains low at 36% and the increase of the rate is slowing.
● Baidu launched a beta version of its own Internet browser, Baidu Browser?, in July 2011, including a reported 30,000 cloud-based apps.
● Baidu announced a management and organization restructure on July 8. The press release is posted here [Baidu Announces Management and Organization Restructure "Spur development, create efficiencies, enhance synergies"].
● Baidu and Microsoft announced July 4 that Bing will power Baidu's English language search in China. Additional partnerships with Microsoft Bing are possible as Baidu pushes for expansion outside of China.
● Here Comes Baidu TV? Following Apple TV and Google TV, Baidu announced July 6 the formation of a strategic partnership with Wasu Digital TV. Baidu services will be pre-installed on the Wasu platforms.
● Baidu wants to be listed on the new Shanghai Stock Exchange international board, as an "A-list" company,  when it is launched. No date has been given by the Chinese government for this new stock exchange, which will allow foreign firms to trade Chinese companies in yuan-denominated shares.
● Baidu, as with its USA counterpart Google, has been acquiring other companies, including a 29% interest in Leftbrain (June 23), a Chinese online ratings site operator, and a majority interest in Qunar (June 24), a Chinese online travel reservations and resources service.
● There has been controversy regarding Baidu allowing illegal MP3 music downloads via Baidu MP3, a music search service that allows users to search, stream, and download (copyrighted) music free of charge. Catherine Leung of Baidu stated on May 7, 2011, "Copyrighted music will be the direction of Baidu's music business in the future, and our music-search service will also be based on legal content." The International Intellectual Property Alliance (IIPA), which represents the United States' copyright industry groups, testified at a USA Congressional hearing on Wednesday, May 4, 2011, that Baidu had "serious infringement problems".
● Baidu had a 75.8% search market share in China for the quarter ended March 2011 per Analysys International. Google is second with a 19.2% share. Google has redirected its China traffic to Hong Kong since a censorship conflict with the Chinese government in 2010.
● FWIW Department: Unidentified Chinese residents, as plaintiffs, have sued Baidu and the Chinese government for $16 million in a Manhattan, New York federal court for censoring Internet information. (Zhang vs. Inc., Southern District of New York, Manhattan) China requires websites to self-censor pornography, gambling, and content critical of the ruling Communist Party. No USA court has jurisdiction in these matters and the lawsuit is symbolic, even if a default judgment was obtained. China blocks Google's YouTube, Twitter, and Facebook, among many other websites.

About Baidu
Baidu, Inc. is the leading Chinese language Internet search provider. As a technology-based media company, Baidu aims to provide the best way for people to find information. In addition to serving Internet search users, Baidu provides an effective platform for businesses to reach potential customers. Baidu's ADSs, each of which represents one Class A ordinary share, currently trade on the NASDAQ Global Select Market under the symbol "BIDU".

The Baidu Story
Many people have asked about the meaning of our name. "Baidu" was inspired by a poem written more than 800 years ago during the Song Dynasty. The poem compares the search for a retreating beauty amid chaotic glamour with the search for one's dream while confronted by life's many obstacles. "…hundreds and thousands of times, for her I searched in chaos, suddenly, I turned by chance, to where the lights were waning, and there she stood." Baidu, whose literal meaning is hundreds of times, represents persistent search for the ideal.

Baidu chose a poetic Chinese name because it wants the world to remember its heritage. As a native speaker of the Chinese language and a talented engineer, Baidu focuses on what it knows best - Chinese language search. Applying avant-garde technology to the world's most ancient and complex language is as challenging as it is exciting. At least people here at Baidu think so. As having diligently disclosed in the Prospectus of our recent Initial Public Offering, we believe there are at least 38 ways of saying "I" in Chinese. It is important that we master all the ways of addressing oneself in Chinese because our users depend on us to address every one of their daily queries. And trust us, pin pointing queries in the Chinese language is an art rather than a science.

Our mission is to provide the best way for people to find information. To do this we listen carefully to our users' needs and wants. Have we collected all the Chinese web pages they want to see? Are the pages current and up to date? Are the search results closely related to their queries? Did we return those search results instantly? To improve user experience, we constantly make improvements to our products and services. For example, we introduced "phonetic" or "pin-yin" search which allows our users to type in Chinese keywords using English alphabets. This feature is designed to skip the switching from English inputting to Chinese inputting and for when the user is not sure of the written form of a keyword. Our users definitely notice the many little things that we do differently to ensure a simple and reliable search experience every time. 

In addition to serving individual users, we also serve as a media platform for online marketing customers. We not only provide our customers easy access to one of the largest online audiences in China but also targeted groups with defined interests as indicated by queries. Unlike traditional online advertising services which charge by flat fee, our marketing products and services are performance based. Our Pay for Performance model has taken the market by storm because it is cost effective and measurable.

We know that a lot of interesting things are going on in the Internet space, but we don't want to lose focus. China's Internet search industry is only a newly discovered territory. We see vast untapped grounds in our home base and we believe there are still plenty of prizes to be claimed by the best players.

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