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.

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. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  6. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  7. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  8. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  9. Markets

    Will Paris Attacks Undo the European Union Dream?

    Last Friday's attacks in Paris are transforming the migrant crisis into an EU security threat, which could undermine the European Union dream.
  10. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  1. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Trading Center