Wednesday, July 31, 2013

Why Baidu Shares Boomed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese Internet giant Baidu (NASDAQ: BIDU  ) soared 13% this morning after its quarterly results and outlook topped Wall Street expectations. 

So what: The stock has slumped in recent years on market share losses to rival Qihoo 360 Technology, but second-quarter revenue growth of 39%, coupled with upbeat guidance for the current quarter, suggests that the tide may be turning. While quarterly profit fell 4.5%, strong momentum in Baidu's mobile segment -- mobile revenue accounted for more than 10% of business for the first time -- indicates that management is at least starting to gain traction in that key space.

Now what: Management now expects third-quarter revenue of $1.42 billion-$1.46 billion this quarter, well ahead of Wall Street's view of $1.35 billion. "We are encouraged to see clear progress in key investment areas," said CFO Jennifer Li in a statement. "We will continue to invest aggressively and remain committed to building long-term value for our shareholders." With the stock still well off its two-year highs (even with today's surge) and trading at a 10-year low P/E, there should plenty of upside left to profit from that bullishness.

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