Chinese internet search provider Baidu (Nasdaq: BIDU) continued its winning earning ways with another impressive report. The company increased many of its key numbers by 40-50% in the year-over-year quarter. The stock continued to rise after the news. (Thinking about adding a technology exposure to your portfolio? Read Technology Sector Funds.)

IN PICTURES: World's Greatest Investors

Earnings And Revenue Robust

Baidu saw its fourth-quarter revenue increase by 39.8 percent to $184.7 million. Net income was $62.7 million, an increase of 48%. Diluted earnings per share were $1.80 for the quarter. The full implementation of Phoenix Nest, similar to Google (Nasdaq: GOOG) Ad Words, helped boost results beyond expectations. Baidu increased its active online marketing customers by 13.2 percent over the same quarter last year to 223,000. The Phoenix Nest transition to what management had deemed its premium advertising platform was a key objective of the past year.

Full Year And Beyond
The full year's numbers were similar to the quarter's: Net income was $217.6 million, a 41.7 percent increase from a year earlier. Diluted EPS was $6.26 on revenue of $651.6 million. The outlook for next quarter pegs revenue at a 48-52 percent increase over last year.

Dominant
Often called the "Chinese Google", Baidu has been touted as the beneficiary of Google's troubles with censorship in China. More than that, the supposed market share of Google in China is actually closer to only 10-15 percent rather than the 36% often quoted.

Baidu doesn't just dominate its foreign competitors, it also wins out over its local rivals. Sina (Nasdaq: SINA) and Sohu (Nasdaq: SOHU), two prominent internet display ad companies, don't have Baidu's search emphasis. Baidu is able to leverage this into more concentrated leads for advertising revenue, much as Google does over its competitors in the U.S.

Dominant But Narrow?
Baidu's crushing search business in China hardly means these other internet companies aren't worthwhile. Sina and Sohu still have solid online advertising platforms. Tencent (OTCBB: TCEHY), an intriguing company with popular instant messaging, is even developing its own search engine.

Sohu, which is doing well but without the outsized profits of Baidu, is in the lucrative online gaming space through its 74 percent stake in Changyou (Nasdaq: CYOU). The online gaming market is well-developed in China, something not yet seen to the same extent in the U.S. Sina also has its admirers as a recent upgrade shows.

The Minor Negatives
A negative factor for Baidu, which would only potentially impact it down the line, is its lack of innovation. Thus far, the company has been tremendous at executing and performing in search. As this black hole portal, it pulls enormous business into its vortex. But these other Chinese internet companies are staking out important areas that should only grow in importance in the future.

The other negative is the stock price. With a recent price of more than $485, Baidu is selling at roughly 75 times earnings. The earnings growth rate of 40-50 percent is phenomenal, but the air can get a little thin with that kind of multiple, where even a small event can be of seismic importance to the stock price.

Bottom Line
Investors should know that Baidu is a great company, though, and not let the minor negatives deflect them from the stock. Wait for a significant pullback in the stock price and multiple, and then be ready to pounce. (Strategic acquisition is becoming a part of doing business. To learn more, refer to M&A Competition Is Cutthroat For Acquirers.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  2. Markets

    The 5 Biggest Chinese Natural Gas Companies

    Read about the top five Chinese natural gas companies as measured by gas production volume and learn a little more about their business operations.
  3. Markets

    The 5 Biggest Chinese Insurance Companies

    Read about the top Chinese insurance companies by market capitalization, and learn a little about their positions in the marketplace.
  4. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  5. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  6. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  7. Investing Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  8. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  10. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
RELATED TERMS
  1. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  2. Equity

    The value of an asset less the value of all liabilities on that ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  5. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  6. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!