BIDU Searching For All-Time Highs

Baidu Inc. (BIDU), China’s leading internet search provider, reported a blowout quarter Tuesday after the bell, and shares are reflecting the news during the after-hours session.  The “Chinese Google” posted non-GAAP EPS of $1.88 on revenue of $184.7 million, far outpacing consensus estimates of $1.68/share on$180 million in revenue.  The company also guided higher, forecasting revenue of $176 – $181 million for the next Q, topping estimates of $170.2 million.

One reason behind the earnings beat was Phoenix Nest, Baidu’s relatively new advertising system.  Baidu had been aggressively pushing Phoenix Nest, too aggressively according to some, but according to the company’s CEO, the advertising system was one of the strongest drivers behind the quarterly out-performance.  This may also be indicative of greater strength in the general Chinese ad market.

It’s worth mentioning that BIDU may gain future market-share if Google actually follows through on it’s threat to permanently leave China, but any illusions of grandeur should be tempered.  BIDU already has a significantly better foothold in China than Google, and their CEO stated that neither the earnings beat, nor the upbeat forecast, had anything to do with actions on the part of Google.

Whatever the reason is for the beat, shares rocketed upward after-hours.  At the close of after-hours trading, shares were up $38.57, good for a 8.87% pop and a fresh all-time high.  As you can see in the chart below, BIDU initially hit all-time highs of $429.19 during November 2007 before slipping as low as $100.50 during December 2008 (please send me back).  BIDU went on to break those old highs over the last few months, touching as high as $470.25 last month.  Shares last traded hands at $473.28.

Whenever a stock hits an all-time high, there is cause to take notice.  I would definitely like to see how volume plays out tomorrow, though it seems a foregone conclusion that it will be huge.  If we were still in the throws of the bull market, I would say to buy at or near the open, but our current correction remains a cause for worry.  If the market were to suffer further weakness, BIDU would almost certainly trade down in sympathy.

The first thing I would be on the lookout for tomorrow is whether BIDU can close at or near it’s highs for the day.  If it can do that, and especially if it can maintain strength in the the face of further market weakness, I would ready myself to get behind the shares.  But I would still recommend waiting for demonstrated market strength (think more than one day) before committing to a big position.

Disclosure: No Holdings In BIDU.