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TheStreet Open House

Baidu Surges: What Wall Street's Saying

NEW YORK (TheStreet) -- Baidu (BIDU) shares surged after the Chinese Internet search giant reported fourth-quarter results that blew past expectations, and noted that 2014 would be a year of big investment, as the company competes for the lucrative Chinese Internet market.

For the fourth quarter, Baidu earned $459.9 million in net income, earning $1.39 per share on a non-GAAP basis, as revenue exploded to $1.573 billion, up 50.3% year-over-year.

"We're pleased to have finished a milestone year for Baidu with a solid fourth quarter performance," said Robin Li, chairman and chief executive officer of Baidu in the press release. "2013 was marked by our entry into new areas and significant progress in mobile, as we invested aggressively to build out Baidu's position in search, app distribution, and location-based services. Our efforts to drive mobile adoption among customers gained significant traction throughout the year. In the fourth quarter, mobile accounted for over 20% of total revenues."

Though Li was pleased with the results, he noted that Baidu is going to look for acquisitions in 2014, as the company continues to expand into mobile search, and compete with other Chinese Internet giants, including Tencent Holdings and Alibaba Group, which is partially owned by Yahoo! (YHOO).

Shares of Baidu were higher in early Thursday trading, gaining 3.5% to $179.00 following the results.

BIDU ChartBIDU data by YCharts

For the first quarter, Baidu said it expects revenue will be between $1.526 billion and $1.573 billion, largely in line with Wall Street consensus. Following the quarter, analysts on Wall Street were largely positive, though some warranted caution, as 2014 proves to be a year of heavy investment. Here's what a few of them had to say.

Oppenheimer analyst Ella Ji (Perform, No PT)

"BIDU's 4Q revenue beat our estimate by 3%, while non-GAAP EPADS missed by 1% mainly on higher SG&A expenses. 1Q14 revenue guidance points to 54.8-59.5% y/y growth, the highest since 3Q12, indicating the aggressive growth strategies are bearing fruit. The mobile momentum accelerated nicely in 4Q, with revenue contribution climbing to over 20% from 10% just two quarters ago, and we are positive to see monetization further pick up in coming quarters. Management indicates a higher level of investment in 2014, which suggests favorable long-term upside but again tempering near-term margin outlook."

Pacific Crest Securities (Outperform, $220 PT)

"Although Baidu anticipates another year of large operating margin declines in 2014, we believe Baidu is spending in strategically important areas, and the benefit from the company's elevated spending in 2013 is already manifesting itself in accelerating revenue growth. With the majority of the increased spending non-structural in nature, we would preach patience to investors focused on profitability and point to share gains and entry into new markets."

Morgan Stanley analyst Philip Wan (Equal Weight, $179.60 PT)

"Baidu delivered a solid 4Q result and improved 1Q sales outlook, however due to its continuous aggressive investment, the management expects no profit growth in 2014, implying the full-year margin will drop another 11-12ppts. While we remain positive on Baidu's improved market position in mobile Internet services, due to limited margin visibility, we downgrade the stock to EW with a price target of US$179.6 per share and will revisit our investment thesis when the margin stabilizes."

--Written by Chris Ciaccia in New York

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