Monday, January 23, 2012

Baidu Earnings Preview: Another Record Quarter Expected

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Chinese Renminbi (RMB) A conversion rate of RMB6.333 to US$1.00 on 1-23-12 is utilized as an average and estimate in this preview. A conversion rate of 6.378 was utilized at 9-30-11 by Baidu for prior quarter Q3 2011 financial results.

Baidu (BIDU) Quarterly Earnings Announcement

Baidu will report Q4 2011 financial results on Thursday, February 16, after market close. The conference call will be at 8:00 p.m. ET.

Baidu Future and Past Financial Performance
Estimated Q4 2011 Earnings per Share (Non-GAAP)
Yahoo Finance Analysts Estimates: $0.91 = RMB5.76 avg, $0.86 low, $1.18 high, 18 analysts
Prior Quarter: $0.86 = RMB5.44
Prior Year: $0.52 = RMB3.29
Baidu Outlook: None for
EPS OspreyFlyer Estimate: $0.90 - $0.92 based on Baidu revenue outlook

Prior Q3 2011 Financial Results (GAAP) When Baidu reports Q4 2011, the 3 months ended December, financial results, Baidu is expected to meet, beat, or miss various prior quarterly results. These prior quarterly GAAP financial results were:
Total Revenues RMB4,175,465,000 = $659.631M
Operating Income RMB2,226,329,000 = $297.256M
Net Income RMB1,881,631,000 = $1.78B
Earnings per Share RMB5.38 = $0.85
Baidu Outlook none
Gross Margin 73.51%
Operating Margin 53.32%
Net Margin 44.92%

Summary (GAAP) Overall, Baidu is expected to report another record quarter and beat QoQ and YoY for Earnings per Share. Q4 is the strongest quarter on the annual cycle with a slowing in Q1. Therefore, Baidu should beat QoQ and YoY for Total Revenues, Operating Income, Net Income, and Cash Flow per Share. Baidu should meet QoQ and YoY for gross margin, operating, and net margins. In short, this is expected to be yet another record quarter. The question is how much of a record? The prior quarterly charts are reviewed below.

Baidu Reports Another Record-Breaking Quarter: EPS +15% QoQ & +79% YoY!

* Unless otherwise noted, currency amounts below are in Chinese Renminbi (RMB) *

Baidu Summary Q3 2011 Baidu reported another record-breaking quarter. New record highs were reported for total revenues, operating income, net income, and earnings per share. Gross, operating, and net margins dipped slightly from the prior quarter. Return on assets continues at an astronomical level of 44.72%. As expected, the current Q3 exceeded prior Q2 and Q4 is expected to surpass the current Q3. The expectations continue sky high for Baidu in the world's largest Internet market. Financial position is strong and liquid. Robin Li, Chairman and CEO, attributed the stellar financial performance to "rapid growth in customer spending and user traffic". The currency translation at September 30, 2011 utilized by Baidu was RMB6.3780 to US$1.00.

Baidu Income Statement Q3 2011 Baidu financial performance was yet another record-breaking quarter with record total revenues RMB4.18 billion, record net income RMB1.88 billion, and record earnings per share RMB5.38 ADS. From the prior record setting quarter Q2 2011, QoQ, total revenues were up +22%, net income up +15%, and earnings per share up +15%. From the prior year Q3 2010, YoY, these were up +85%, +80%, and +79%, respectively. Gross, operating, and net margins dipped QoQ to 73.51%, 53.32%, and 44.92% compared to prior year Q3 2010 of 74.57%, 52.37%, and 46.40%, respectively.

Baidu Balance Sheet Q3 2011 Total assets increased an impressive +45% QoQ and an astounding +125% YoY to a record high RMB20.87 billion. The capital to assets ratio is a solid 62.95%, but a multi-year low. Baidu is liquid with a current ratio of 66.42%, which is also a multi-year low.  Baidu has over RMB11.4+ billion in cash, cash equivalents, and short-term investments. Return on assets of 42.25% continues at astronomical levels, but slightly decreased QoQ.

Baidu Outlook Q4 2011 The Baidu outlook for Q4 2011 is strong, and record-breaking, total revenues of RMB4.41 billion to RMB4.535 billion, which would exceed the Q3 2011 quarterly record of RMB43.18 billion. If the gross and net margins can be sustained at the current very high levels, the next quarter looks outstanding. Baidu states, "Baidu currently expects to generate total revenues in an amount ranging from RMB4.410 billion($691.4 million) to RMB4.535 billion ($711.0 million) for the fourth quarter of 2011, representing a 79.9% to 85.0% year-over-year increase. This forecast reflects Baidu's current and preliminary view, which is subject to change." Baidu may provide additional information on their outlook in the earnings conference call.

Baidu Financial Performance by the Quarters Baidu Earnings Per Share Current Earnings per Share of RMB5.38 increased +15% QoQ and +79% YoY and is a record high. Earnings per Share have increased 6 of the past 7 quarters and 7 of the past 9. The EPS chart average is RMB2.70.


Baidu Cash Flow Per Share Current Cash Flow per Share of RMB35.40 decreased -15% QoQ but increased +39% YoY. Cash Flow per share has increased 6 of the past 9 quarters QoQ. The all-time high was Q2 2011 of RMB59.56. The CFS chart average is RMB33.08.


Baidu Total Revenues, Operating Income, and Net Income Current Total Revenues of RMB4.18 billion is a record high, increased impressively +22% QoQ and +85% YoY, and have increased 6 of the past 7 quarters. Current Operating Income of RMB2.23 billion is a record high and has increased 6 of the past 7 quarters. Current Net Income of RMB1.88 billion is a record high, increased an impressive +15% QoQ and +80% YoY, and has increased 6 of the past 7 quarters. The TR, OI, and NI chart averages are RMB 1.94B, 929M, and 824M, respectively.


Baidu Gross Margin, Operating Margin, and Net Margin Overall, these have been incredible margins. Current Gross Margin of 73.51% dipped QoQ and YoY, but is above the historical average. Gross Margin has now been above 70% for 6 consecutive quarters. Current Operating Margin of 53.32% dipped QoQ but increased YoY. Operating Margin has been above 50% for 5 of the past 6 quarters. That one quarter below, Q1 2011, was 49.04%. Current Net Margin of 44.92% dipped QoQ and YoY but has been above 40% for 6 consecutive quarters. The GM, OM, and NM chart averages are 68.76%, 43.93%, and 39.42%, respectively.


Baidu Return on Assets ROA continues at astronomical levels. Current Return on Assets of +42.25% dipped QoQ, after increasing 6 consecutive quarters on the chart. ROA increased YoY. The ROA chart average is +39.23%.


Baidu Growth Rates YoY Baidu's growth. Baidu has been a high growth technology company and stock. Current Total Revenues Growth YoY of +85.09% continues the amazing growth. Current Earnings per Share Growth YoY of +79.33% also continues the very strong growth, but is "slowing". The TRG and EPSG chart averages are 82.83% and 116.09%, respectively.


Baidu Traffic Acquisition Costs Current Traffic Acquisition Costs of 8.00% continues the the 4th consecutive quarter in the 8.00% area. TAC increased slightly QoQ and decreased YoY. The TAC chart average is 10.01%.


Operating Expense Ratio The current Operating Expense Ratio of 20.19% is historically below average, increased QoQ, and decreased YoY. This indicates in the current quarter both a slight decreased efficiency plus a slightly lower proportion of revenues reaching the bottom line, net income and earnings per share. The OER chart average is 24.83%.


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