Baidu Inc: Bearish Bets Decline To Lowest Level In 7 Years

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Baidu Inc (ADR) (NASDAQ:BIDU) will release its fiscal second-quarter results on Thursday, July 24. Speculations are ripe that the Chinese search engine company will report strong revenue as it pushes further into mobile services. Amid those speculations, the cost of hedging against losses in the stock have tumbled to the lowest level since 2007, data compiled by Bloomberg show.

Baidu set to report solid Q2 revenues

Puts protecting against 10% fall in Baidu stock cost 0.1 point less than calls betting on 10% rally. Shares of the Chinese search engine giant have rallied 33% from the April 7 low of $143. The Beijing-based company, which dominates 76% of the Chinese search market, is aiming to replicate its success on mobile. China has more than 500 million active mobile Internet users.

Wall Street forecasts the company to report $1.9 billion in second-quarter sales, up 58% from last year. It would be the third consecutive quarter of 50%-plus YoY revenue growth. On Monday, Morgan Stanley upgraded the stock from Equal weight to Overweight rating. The research firm also raised its price target by 32% to $239.30. Morgan Stanley analyst Philip Wan said Baidu’s sales growth has accelerated due to improved search monetization on desktop as well as mobile.

Despite rising revenues, Baidu doesn’t expect earnings growth this year as the company continues to invest in new initiatives. The Chinese company expects mobile search queries to surpass desktop queries by the end of this year. Last year, Baidu spent more than $2.5 billion on acquisitions to maintain its lead in the Chinese Internet market.

Baidu expanding its business to newer markets

Baidu is getting its search, maps and other major apps pre-installed on smartphones. The company says it’s essential in getting people to use its apps. Pre-installation of apps on phones is a major marketing expense. Profit margins are likely to improve in 2015 as the company is expected to lower its spending on pre-installing apps. Last week, Baidu launched its search service in Brazil, and will soon launch search offerings in Egypt and Thailand.

Baidu shares gained 0.23% to $198.88 at 10:23 AM EDT on Wednesday.

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