soared 10% early Wednesday after the Chinese Internet search company's quarterly profit surged.
Baidu reported fourth-quarter net income of $3 million, up 189% sequentially and up 286% from a year ago. Excluding share-based compensation expenses, the company made $4.3 million, or 13 cents a share. Analysts polled by Thomson Financial were looking for 7 cents. Revenue rose 168% from a year ago to $14.2 million. Analysts had expected sales of $12.8 million.
Wall Street analysts cautioned against reading too much into the quarter's results. They cited, among other things, the fierce competition in the Chinese Internet market. Anthony Noto of Goldman Sachs, Richard Ji of Morgan Stanley and Piper Jaffray's Safa Rashtchy all reiterated their underperform ratings.
"While we remain positive on the business opportunity and Baidu's positioning, we still cannot justify the valuation on an absolute basis or relative to the sector," writes Noto in a note to clients. He raised his earnings forecast for the year from 59 cents to 65 cents and from $1.04 to $1.12 next year. In addition, Noto boosted his price target for the stock from $46 to $49.
In his note, Ji argues that it going to be "challenging for Baidu to further access public financing or incentivize future employees who are becoming hot commodities in China's recruiting market."
Rashtchy points in his note to the growing competitive threat posed by
. Baidu is boosting its technology spending to fight the search giant.
"The level of spending, however, seems quite modest to us and is somewhat concerning (a total of $4.2 million in 2005, $500K below our expectation)," he writes. "Our checks indicate that Google has stepped up hiring significantly and is set to spend several times this amount to enhance its search engine."
Baidu isn't popular on Wall Street. Six of the seven analysts who follow the stock rate it either as a sell or a strong sell, according to Thomson Financial. Their average target price is $42.83. Baidu fetched $56.86 early Wednesday.
Baidu's performance boosted Chinese tech stocks that are widely followed in the U.S., including
, which is due to post results Thursday, and
slated to issue results Feb. 27.
U.S. investors may be attracted to Chinese tech companies following disappointing results at U.S. bellwethers including Google,
. Internet usage in China also is expanding at a much faster pace than in the U.S., analysts have said.