Baidu's Profits Rise, Shares Fall

Baidu.com (BIDU, $212.54, down $36.55) tried to stay afloat after reporting spectacular numbers but ended the day 15% lower as Wall Street remained cautious about the Chinese economy. China’s leading search engine reported a profit of $51 million, or $1.46 a share, on revenue of $919 million.

Baidu is China’s version of our Google (GOOG, $352.32, down $3.35) although Google has a strong footprint there. Baidu controls about 60% of the Internet search engine market in China and Google is a distant second. However, the growth for both companies remains strong as Internet users are expected to grow at double-digit rates in China. Other parts of the world can’t match that growth.

Just like Google, Baidu’s share price has been cut in half from its 52-week high. It’s hard to believe that a stock prices continue to drop despite some companies reporting a 100% increase in profits. But that what happens when you are in a bear market.

Baidu’s business model is intact and we will have to see what kind of impact a slowing global economy will have on the company. I’m not ready to jump on the bandwagon but Baidu will have some days where it is going to bounce back strong. When the market gets out of its funk, the leaders will once again lead the market higher. Baidu is a premium name caught in the backdraft of the market.

Rick Rouse
Rick@OptionsMentoring.com

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