Baidu Earnings Calls for Sensationalized Selloff

By Kyle Metivier - April 26, 2012 | Tickers: BIDU, NFLX | 0 Comments

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Progress Report:  Baidu (NASDAQ: BIDU), mentioned 1/10/12 around $127 per share, currently trading around $132 per share (intraday, 4/25/12).

Baidu shares were “hammered” after lowered guidance from yesterday’s earnings call. This is an example of some of the stuff we are fed on a daily basis when attempting to do our homework. I understand how difficult it can be. I would prefer that someone would choose an appropriate analogy for the events that transpired after the call, more along the lines of, “Revenue outlook smacked Baidu, who then subsequently fell off the monkey bars and suffered a bloody nose”. Seriously, hammered? These are the headlines we are faced with in our daily investing research death march; I try to remain calm when I pull these articles up, myself.

Since Baidu didn’t pull off an earnings beat the magnitude of the 'super fruit,' regardless of topping estimates, their tempered guidance gave some investors the shivers, so a few of them ran away. The share price has declined over $12 since market close Friday, April 20, 2012, so we should all run screaming from this burning building, right? Now I know a few of you trade like gnats on a minute-by-minute basis, as if you were living, breathing High-Frequency Trading machines. I don’t trade like that, I prefer to keep my blood pressure at a somewhat normal level, I exercise, I have a life, and I read an incredible amount of over-hyped, super-sensitive gibberish that is somehow thrown onto my research stack. So even though the company’s revenue estimates fall in the $2M-$22M range short of analyst estimates for the second quarter, they are still a 25% increase from Q1 revenues reported yesterday.

I trade Baidu much in the same manner that I trade the aforementioned super fruit (to protect those overwhelmed by the company name, I shall not mention it), by scooping up those poor shares that get picked on by stock market bullies and wait for them to grow up to become the mature benefits to society that I see in them. So along with the earnings-per-share “miss” that beat estimates by a shiny penny, revenues were a bit light ($677M versus analyst estimates of $679M), but not so much that we should all respond like Tony Soprano because the envelope didn’t make weight. I’ve said it before, and I do so just to remind myself: these types of reactions can offer some opportunity, provided we have homework on our side.

I don’t always enjoy earnings calls that give way to after-hour selloffs (or in pre-market trading), but in cases where I liked an investment at first mention, then waited the appropriate amount of time (and then some), I happen to like this one just a little bit. Now playing Chinese checkers with your portfolio does come with a few caveats (see, Renren, China North East Petroleum), so the study time needs to be amped up a bit. But the same could be said for some domestic holdings like Netflix (NASDAQ: NFLX), which didn’t provide enough of an earnings beat from their call yesterday and gave a cautious subscriber outlook, so it was treated rather rudely by shareholders, dropping almost 14% after everyone left the conference call. It’s almost as though Marv Marinovich was the disappointed parent of this once-darling stock, which is shedding almost 3% in share price today, as well. Of course, that could be the Whitney Tilson effect.

Just because I have been gazing longingly in Baidu’s direction for some time, doesn’t mean anyone else should jump in, necessarily. People with much cooler names than mine offer several opinions on either side of any trade, as well as investing in the People’s Republic, so proceed with caution. And if anyone happens to see someone walking along the Great Wall with a fiery red Netflix envelope, please let me know. The recent selloff might be yet another opportunity.

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