Saturday, October 22, 2011

Baidu Drops -11% on Chinese Stock Concerns (Chart, News) *Reports earnings Thursday, October 27* BIDU

● Baidu Planet 

Baidu Founder and CEO Robin Li will announce Q3 financial results on Thursday, October 27


Baidu Inc. Baidu closed at $122.16 on Friday, October 21, 2011. BIDU was down -11.22% for the week, is up +14.26% for October and the quarter to-date, is up +26.55% for 2011, and is  down -25.68% below the all-time closing high reached on July 26, 2011 of $164.36. Therefore Baidu is now in a bear market. FWIW Department: Baidu is up +687.62% from the market cyclical bottom of March 9, 2009, when BIDU traded for a mere $15.51.

Baidu Fundamentals Baidu will report Q3 2011 financial results on Thursday, October 27 and is previewed hereBaidu 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*. These financial results are reviewed and analyzed on this blog at the Baidu Financial Performance page. A review and analysis of the Q2 2011 earnings call has been posted at the Baidu Earnings Conference Call page.


Baidu Daily Chart Below is the BIDU daily chart since January 31, 2011 to illustrate price interactions.

Noteworthy Closing Prices
Current Close: $122.16
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 plunging 25d avg < descending 50d avg since 8-31-11, BIDU < both, bearish
Long Term Trend BIDU < 10 month ema = 125, bearish
Key Resistance at 20 day avg 123, 200d avg 132, 50d avg 133, 100d avg 136
Key Support at 20d avg 123, 120 area, 400d avg 109
Moving Averages below 20d, 50d, 100d, 200d avgs; above 400d avg
Uptrend Line well above, above since 1-13-10, not shown on chart
Downtrend Line below since 10-17-11, line from 7-26-11 all-time closing hi $164.36 to 10-14-11 hi $137.60
RSI 14 Day = 66.59 is reasonable, level
RSI 28 Day = 39.54 is reasonable, descending
MACD (12,26,9) = +0.84, descending, multi-year lo 10-3-11 (-3.67), multi-year hi 7-5-11 (+2.91) 
Volume low 8.1M latest day, 50 day average = 9.99M
Price Earnings Ratio = lower 55.49, has been high 90s to low 100s since 2009
Market Capitalization = lower $42.63 billion


Conclusion BIDU dropped below all the major moving averages on both a Goldman Sachs downgrade to neutral from buy and more concerns over Chinese company accounting practices. The Bank of New York China ADR Index is languishing below the 400-day average and other major moving averages plus has not rallied with the USA equity markets. BIDU reports earnings on Thursday, October 27, which are expected to be stellar. Baidu has lost all the gains (from 156 to 164), and much more, from the record-crushing Q2 2011 earnings reported on July 25. However, the fundamentals and prospects for Baidu are very strong. 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. A review and analysis of the Q2 2011 earnings call has been posted at the Baidu Earnings Conference Call page. The intermediate-term trend continues bearish and the long-term trend continues bearish.

Disclosure We currently have no position in BIDU, but continue bullish on BIDU for 2011 and even beyond. This assumes Baidu is not implicated in accounting irregularities and China does not hinder Baidu with additional regulations.

Baidu News A summary of recent news and announcements; others are posted on this blog.
● Reportedly the Chinese government has given Baidu and other Chinese internet and technology companies millions of RMB for cloud computing development.
● Muddy Waters CEO Carson Block, who has previously exposed fraud at Chinese firms, blasted Big Four accounting firms' practices in China and accused them of being in a "race to the bottom" in a letter to the Public Companies Accounting Oversight Board.
● Goldman Sachs downgraded Baidu to neutral from buy on a weakening advertising environment and less positive risk-reward outlook.
● The Public Company Accounting Oversight Board, which oversees auditors of U.S. public companies, has begun to look at variable interest entities (VIEs) as a "risk area". VIEs are used by Baidu and other Chinese companies to list on USA stock exchanges and evade Chinese regulations of direct investment by foreigners. The Chinese government has blocked inspections of Chinese companies by the PCAOB.
● Baidu continues expansion with the launch of an English-language, Singapore-based website Baidu International to assist companies access Chinese consumers through Baidu. 
● Robert Khuzami, Director of Enforcement of the Securities and Exchange Commission, revealed federal prosecutors around the U.S. are investigating accounting irregularities of Chinese companies. The specific companies and auditors being investigated were not disclosed.
● The China Securities Regulatory Commission has allegedly asked the China State Council to restrict or prohibit variable interest entities, which is the investment structure utilized by Baidu, et. al. to list stocks overseas, allow foreign ownership, and more importantly foreign control and direction of mainland business interests.
●, a travel website in which Baidu owns a majority interest investment of $306 million, has announced plans for a 2012 U.S. IPO.
● Baidu has launched Arabic and Thai websites in September, as part of an international expansion strategy. A Japanese website was launched in 2007.
● Forbes estimates continued strong growth in the China advertising market, growing by 20% in 2011 and doubling by 2016. China is expected to surpass Germany this year and become the 3rd largest advertising market in the world behind the U.S. and Japan.
● UBS estimates that 44% of all e-commerce transactions begin with a product-focused search query. The search provider, then earns revenue as searchers click on paid ads.
● Baidu is teaming up with Dell to develop tablets and smartphones operating on the Baidu Yi mobile OS for Chinese consumers.
● Baidu announced on September 2 a mobile operating system, Baidu Yi, similar to Google Android. A corresponding app store is expected next as developers become involved.
● State-sponsored China Central Television launched a series of criticisms and attacks on Baidu which has created investor uncertainty over political risk. Any potential negative impact will need to be resolved over time to reduce investor uncertainty. This is a reminder of the political risk associated with Chinese companies.
● 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.

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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