Wednesday, November 19, 2008

Baidu Seeks to Dispel Concerns Through Call With Analysts

From JPMorgan Analyst Dick Wei:
Baidu held an analyst call this morning in response to recent CCTV
reports. We came out from the call somewhat more positive. Baidu noted various
action plans that would benefit Baidu in the long term; on the other
hand, the 4Q revenue impact is still uncertain.

4Q08 impact not clear: Currently 10%-15% of revenue comes from medical
and pharmaceutical customers that have not provided Baidu with appropriate
license proof. Over the past few days, Baidu has asked its medical
customers to provide license proof. Once Baidu receives a copy of the
licenses, Baidu will turn the ad campaign back on. Therefore, the 4Q08
outlook is unclear. Baidu is also concerned about the negative traffic
impact in the near term, but no change in traffic pattern is seen.

2009 impact: Revenue impact will probably be less than 10%-15%, with
genuine customers returning, and the company continuing to improve its
monetization model.

Further action plans: Launch PR campaign, improve internal control,
implement better employee education, and continue to review monetization
methodology.

Location of paid search listing: One of the key concerns among investors
is whether Baidu will make paid search results appear differently than
natural search results. Baidu has no immediate plans to change that (and
definitely not forced to make any changes). However, the company mentioned that it
had been investigating a new keyword bidding system "Feng Qiao" that
displays ads on the right hand panels of the result page. Baidu plans to launch
that "soon", and does not expect monetization to be worse than in the current
system. We believe Feng Qiao will first run independently from the
current main panel bidding. The dual bidding system (in the main panel and right
hand panel) should give Baidu more flexibility on where to put its paid
search results.

We believe the current "hiccup" is positive for Baidu in the long term.
Baidu is now taking the right steps to address the longer-term user
experience and monetization issue, and shall put the company on the
right path to grow in the early stage search market. We retain our positive
stance on Baidu. We believe the stock is likely to trade weakly in the
near term until there is more clarity on 4Q and 2009.

Replay available until Nov. 26 at: +1-617-801-6888. Passcode: 48434960.

No comments:

Post a Comment

Custom Search