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      Baidu Hit By Slowing Economy

      2012-07-13 10:14 investors 我有話說 字號:TT

      Baidu (BIDU) dominates China's online search market, the world's largest, but the stock has foundered recently amid concerns that advertising revenue will dry up as the economy slows.

      The company is expected to announce July 23 that profit for the second quarter ended in June rose 51% from a year ago. That's still strong, but it would mark the sixth straight quarter of decelerating growth. Revenue for Q1 rose 82%, the weakest in six quarters but still healthy.

      Almost 80% of China's Web searches go through Baidu, which makes money when users click on ads next to search results. But Baidu's heavy reliance on ad revenue has rattled investors worried that companies will cut spending as the world's second largest economy slows.

      The company is also facing a challenge from a consumer shift to mobile devices, which generate little ad revenue.

      Those fears have prompted some institutional investors to trim their Baidu holdings. The stock is off 34% from its March high, and its Accumulation/Distribution and Relative Price Strength ratings have plunged as the stock on Thursday sank to the lowest level since early October.

      Yet some analysts remain bullish.

      Standard & Poor's Equity Research last week rated Baidu a strong buy, putting a 180 price target on the stock over the next 12 months.

      That's a premium of more than 60% from the current price.

      S&P cited continued growth in China's Internet search market, the benefits of new technologies such as Baidu's Phoenix Nest advertising platform and expansion into new areas. The Phoenix Nest system is similar to Google's (GOOG) AdWords, the company's biggest source of advertising revenue.

      "We believe that BIDU, based on the benefits of being a Chinese company, capturing early market leadership and having a well-known brand, will likely at least maintain its market share over the near to intermediate term," S&P said.

      Meanwhile, Baidu is developing an Internet browser and expanding into mobile devices to grab a bigger piece of the growing mobile advertising market.

      It recently debuted a smartphone, with its search engine added as an option on Apple (AAPL) iPhones and iPads in China.

      Despite Baidu's recent troubles, its annual pretax margin was a robust 54.9% last year.