Baidu (BIDU) Q4 Blowing Past Estimates--Rohan

The “Google of China” is having a strong quarter, says RBC’s Jordan Rohan, who nudges his estimates higher. Rohan also thinks earnings and revenue guidance for 2008 will be higher than expected, adding another catalyst for the stock.

Rohan’s details after jump…



Net: We believe 4Q07 is tracking better than anticipated, prompting us  to raise 4Q07 estimates ahead of guidance/consensus to +17%  sequential growth (vs. prior +16%, consensus +15%). On the heels of a good 4Q07,  we also believe guidance for 1Q08 will be ahead of consensus.

In short, Baidu is accelerating once again, and we have raised our 2008 and 2009 estimates and our target to $423. BIDU remains one of the few companies in our coverage universe that is benefiting from every macro, secular, and cyclical catalysts all at the same time. The only factor that holds us back from a more favourable rating is valuation.

4Q07 Tracking Better than Anticipated: Our most recent channel checks reveal that after a lackluster, in-line October, November  has seen significant acceleration and although December is not completely done, it will likely maintain November’s momentum.  Net/Net, we believe 4Q07 is tracking to beat guidance/consensus.

1Q08 Guidance Likely Ahead of Consensus: 1Q08 presents easy comps as Baidu was executing its way through the salesforce reorganization in Beijing and changes to its ranking algorithm in1Q07. We believe Baidu has made its way through the factors

Our valuation multiples are 50x earnings, 30x EV/EBITDA, and a 2% FCF yield, in line with comparable growth companies in our universe. Application of these multiples on our 2009 estimates yields our target of $423.

Disclosure: Henry Blodget owns shares in Baidu.

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