Baidu: Analyst Confident in Estimates after Channel Checks

PiperJaffray analyst Gene Munster comes away confident in his Baidu (BIDU) 2Q10 revenue and EPS estimates of $273 million and $0.28, respectively, after meeting in China with seven public and private companies.

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From his checks he believes that advertisers have returned to planning campaigns farther in advance rather than the shorter term spot buying from 2009. While CPC growth appeared to have slowed in China, search advertisers noted that they are increasing the number of clicks purchased and that is more than likely to offset the slowdown in CPC growth.

Only caution is that his checks revealed that management is investing for growth which means that margins are likely to come under pressure. He expects operating margins to decline to 39.5% in 2Q10 from 41% in 1Q10. However, that is already reflected in Street estimates.

We have selected Baidu as our top Internet pick over the next six months. See the write-up here.

He noted that some companies suggested the quality in terms of results of Google's service in China had decreased since the strategy change.

We continue to see a 50% upside move in the share price of Baidu over the next six months.