-Report Q4 after the close
-options market implying about a an 8% move vs the 4qtr avg of about 5%.
-30 day at the money implied vol offered at 52 is fairly rich to the 30 day and 60 day realized vol of about 36 and 43.5 respectively, but basically inline with the 120 day realized vol of about 51.
-Open interest is dramatically in the camp of the Feb 140,145, 150 calls with btwn 12k and 14k of each, while the highest Put open interest in Feb is in the 110 lien with about 10k, and in the 125 and 115 lines with 8k and 7k respectively.
-today most of the action again lies in the calls with the 3 most active options today being the Feb 140, 145 and 150 lines with btwn 5k and 6500 of each trading so far on the day.
See a couple broker previews below the trade.
Price Action / Sentiment:
-BIDU up 20% ytd has dramatically outperformed GOOG down 6% ytd.
-Wall Street analysts are overwhelmingly positive on the name with 25 Buys, 5 Holds and no Sells, with an avg 12 month price target of about $191.
Technicals: Stock as obviously had a healthy run this year, and is about 38% off of the Aug Lows. The $140 level which sits above the 200 day moving average is obviously an interesting support/resistance level.
MY TAKE: BIDU is just one of those companies that sits in a little bit of a world of its own. WHile many of it’s so called Chinese “net” peers struggle with US investor scrutiny whether they are legit or not, BIDU presses forward in its GOOGesque dominance of the Chinese search market. Soon after their IPO in 2005 I met with this company in Beijing and they were a “real” company then and they certainly are now when u consider their market share and the torrid pace of growth over the last 7years……
I don’t have any particular view on the qtr, I know that some investors are worried about slowing growth in China and what that means for domestic consumption, and how that may hurt BIDU’s search revenues.
The stock only trades at about 32x this years expected earnings of about 4.58, which is at the low end of the last 5 yrs PE range and a PEG (PE to growth) ratio of about .5x. Yes valuation to more traditional tech companies looks nuts but through in the words “China” and Internet stocks” and the thing looks reasonable.
TRADE TO CONSIDER PLAYING FOR A MOVE BACK TO THE 2011 HIGHS:
BIDU $140.80 BUY Jun 150 / 170/ 190 Call ButterFly for ~3.00
Buy 1 Jun 150 call for ~11.00
Sell 2 Jun 170 Calls at ~5.15 each, or 10.30 total
Buy 1 Jun 190 Call for ~2.30
Break-Even on June Expiration:
Profits btwn 153 and 170 make up to 17.00, profits trail btwn 170 and 187, max gain at 170
Losses of up to 3.00 btwn 150 and 153 and btwn 187 and 190, with max loss of 3.00 below 150 and above 190.
THE BREAK-EVENS FOR THE MAX LOSS ARE FAIRLY WIDE AND IN A DECENT MARKET WITH DECENT EXECUTION THERE IS A DECENT CHANCE THIS STRUCTURE BREAKS EVEN UP ABOUT 10%
THIS IS NOT A TRADE THAT I AM PUTTING ON NOW, BUT AFTER THE EARNINGS IF THE STOCK DOESNT HAVE A LARGE MOVE ONE WAY OR THE OTHER I MAY CONSIDER OUT OF THE MONEY CALL SPREADS OR FLY’S IN NAMES THAT I THINK HAVE THE POTENTIAL TO OUTPERFORM THE MARKET IN THE EVENT WE CONTINUE TO RALLY, BIDU CERTAINLY FALLS INTO THIS CATEGORY.
BROKER PREVIEWS:
JPM who rates the shares a Buy with a $200 Target had the following to say in a note dated Feb 14th, 2012:
Baidu is scheduled to report 4Q11 results after US market close on February
16 (February 17 Morning HKT). We expect company to report good results,
driven by large advertisers and advanced phrase match technology. We
believe the valuation is attractive given long-term growth opportunities.Expect Baidu to report close to high-end of guidance: We expect Baidu
to report 4Q11 revenue around the high-end of guidance of US$691.4MnUS$711.0Mn (5.6%-8.6% QoQ growth, or 86.2%-91.5% YoY growth). We
expect 4Q11 revenue to beat our current forecast of US$704.2Mn (up 7.6%
QoQ, or 89.6% YoY) vs. consensus at US$708.7Mn. While in 4Q11, SME
spending was impacted by difficulties in financing, we saw large advertisers
continue to increase budget on Baidu to offset the negative impact. In
addition, advanced phrase match enhancement which started in 3Q11
continues to benefit Baidu. We forecast 4Q11 EPS to be US$0.90 (up
5.1% QoQ and 75.1% YoY), inline with consensus of US$0.90.Expect in-line 1Q12 guidance ahead of consensus: With early Chinese
New Year, we see more normal working days for SME than prior years. As
a result, seasonality to be better. We estimate 1Q12 revenue of
US$686.6Mn (down 2.5% QoQ and up 84.6% YoY). This compares with
consensus estimate of US$675.9 (down 4.0% QoQ).Margins to be stable: We expect adj. OPM to be around 52% for 4Q11. In
2012, key uncertainty in margins comes from potential investments in Qiyi.Key things to look for: (1) outlook for online ad market, (2) growth in
revenue from SME clients vs. large advertisers, (3) online video and travel
site growth, and (4) bandwidth and content costs
Jeffries who rates the shares a Buy and a $200 price target had the following preview on Jan 30th:
Baidu will report FY11 results in the last week of February. We estimate FY11 revenues of RMB14.5bn, up 82.8% YoY, and 4Q11 results to come in close to the midpoint of management guidance at RMB4.4bn, due to weak seasonality and some impact from new personalized front page. FY12/13 search ads growth outlook remains solid and Baidu’s 4Q11 search query volume is healthy, based on our recent channel checks. Maintain Buy with PT USD200. Expect impact from weak seasonality & new personalized FP on 4Q results.
We expect 4Q11 revenue to come in at RMB4.4bn, up 6.4% QoQ and 81.3% YoY, close to the midpoint of management guidance due to weak seasonality and some impact from new personalized front page. Adj. OP margin should decline 180 basis points QoQ to 55.7% due to Qiyi investments and higher S&M expenses for Baidu’s tenth anniversary promotions. We estimate 4Q11 non-GAAP EPS to be USD0.91, up 1.7% QoQ and 73.4% YoY. For FY11, we expect revenue to come in at RMB14.5bn, up 82.8% YoY, 1.7% above consensus; non-GAAP EPS at USD3.08, up 93.2% YoY, 2.7% above consensus.
Solid search ads outlook with 50%+ growth forecasted for FY12/13. According to our latest industry checks, China’s search ads outlook remains strong with 50%+ growth forecasted for FY12/13, driven by more offline SMEs shifting into online marketing, growing demand from e-Commerce advertisers and large enterprises. Baidu’s search query volume remained healthy in 4Q11. Based on our checks, Baidu’s search query volume grew 17% YoY in 4Q11 and maintained 81-82% market share by search queries, stable from 81.9% in 3Q11.
Model revisions. We fine-tuned our FY12/13 revenue growth assumptions to 54.9%/43%, from 60.7%/47.1% and revenues were revised down by 4.1%/6.7%, respectively. Non-GAAP EPS estimates for FY12-13 were revised down by 4.2%/6.8% to USD4.83/6.93, implying 56.9%/43.4% YoY growth, respectively.
Valuation/Risks
[/preview]
Reiterate Buy with USD200 PT unchanged. Our PT implies 41.4x FY12 PE. The stock is now trading at 0.5x FY12 PEG ratio, 61% discount to its peer average PEG. On a PE basis, Baidu is trading at 27.2x FY12 PE, a 33% premium to its peer average of 20.5x. Risks include slower than expected customer monetisation, SME adoption and a slump in e-Commerce ads demand