Chinese web stocks are a big theme on the market in 2014, and their performance is likely to weigh heavily on the future valuation of the industry. Baidu Inc (ADR) (NASDAQ:BIDU) is the old hand in the business, and its earnings, released on Thursday afternoon, impressed investors. The company’s stock traded upward on Friday as a result of the numbers, but some analysts are mystified by aspects of the company’s guidance.
Baidu showed earnings of $1.24 per share, ahead of analysts expectations of $1.21 per share. Revenue came in at $1.52 billion, a little below the estimates of analysts, but not enough to disappoint the majority of those interested in the company’s shares. The firm’s guidance for the year ahead, which was announced at the end of the 2013 fiscal, shows no expectation of earnings growth, as pointed by Aaron Back of The Wall Street Journal.
Baidu earnings expectations don’t match takings
Baidu Inc (ADR) (NASDAQ:BIDU) showed substantial earnings growth in the first quarter of 2014, reversing the company’s own guidance. According to Baidu management the company’s guidance for the full year still stands. Either the firm is being overly conservative in an attempt to keep expectations in check, or it knows something about the quarters ahead that investors don’t.
Investors in Baidu Inc (ADR) (NASDAQ:BIDU) are expecting the company to grow massively in the year ahead. The firm is trading at more than 33 times its 2013 earnings. With guidance from the company showing expectations of earnings to be flat year on year, it was hard for some investors to justify owning the stock after its Q4 earnings report.
After Thursday’s earnings however, it looks like Baidu Inc (ADR) (NASDAQ:BIDU) may grow in 2014 after all. The company may decide to invest more in the quarters ahead, and that may explain the discrepancy between guidance and earnings.
Baidu leads Chinese internet charge
Baidu Inc (ADR) (NASDAQ:BIDU) is the leader in the public Chinese internet industry, but its dominance will be challenged this year. Companies like Tencent are expanding their presence on mobile and other platforms, and AliBaba, likely the biggest company in the space, is all set to go public later on in 2014.
The Chinese internet market is growing at an incredible rate and, for the most part, American and European internet services firms have been kept out of the market due to difficulties in operating in the giant Asian economy, that gives companies like Baidu Inc (ADR) (NASDAQ:BIDU) incredible room to grow.
Baidu Inc (ADR) (NASDAQ:BIDU) is bound to face challenges as other internet platforms grow in China, and the company’s management may be worried about its position as its rivals take up more of the space in the industry. Baidu earnings guidance is difficult to understand, and those investors betting on its growth are likely to have trouble understanding its trajectory on the back of that forecast.