Baidu Still A Good Buy Even With Downgrades

Baidu (BIDU) is an internet company that offers a Chinese language search engine. Baidu’s headquarters is in Beijing of The People’s Republic of China. The company has a market cap of $34.8 billion, and its stock price is around $108.

Baidu is an internet search engine company that many Americans have dubbed as the Chinese Google (GOOG). Baidu, like Google, attracts millions of users that want to browse the internet. Baidu makes money by collecting advertising fees from companies that want to sell products and services to those users. As of mid 2011, Baidu had the world’s largest internet user population with 477 million people. Up until June of 2011, Baidu had been a hot internet stock. Investors were attracted to its ferocious level of growth, and to its potential to tap into the huge Chinese population. In the two years prior to June of 2011, Baidu’s stock price had increased by 463%. But, since June of 2011, the stock’s price has slipped. Surprisingly, slower earnings growth was not the reason. In the second quarter of 2012, the company reported revenues of $858.7 million which was a year-over-year increase of 62.5%. The company’s second quarter earnings per share were $1.24 which was a year-over-year increase of 72%.

There are two reasons for the decrease in the stock price. The first is a lack of trust regarding the accounting reports from Chinese companies. In June of 2011, the Muddy Waters Research firm put out a report which basically said that a Chinese tree growing company Sino-Forest (TRE) had been “cooking its books to show more assets and earnings than actually existed, likening the company to a Ponzi Scheme.” To continue reading, click here.