Baidu Jumps to Record After Profit Margin Beats Estimates

By Belinda CaoOctober 30, 2014 5:32 PM

Baidu Inc. (BIDU) jumped to an all-time high in U.S. trading after China’s largest web search engine reported better-than-estimated profit amid growth in mobile traffic.

Baidu’s American depositary receipts surged 5.6 percent to $237.01 in New York, the highest close since its U.S. listing in 2005. Cheetah Mobile Inc. (CMCM), a mobile-security service provider, climbed 6.7 percent to a one-month high, while online beauty products retailer Jumei International Holding Ltd. (JMEI) rose 5.5 percent. The Bloomberg China-US Equity Index added 0.3 percent to 109.79, set for a 2 percent rally for the month.

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Beijing-based Baidu reported an operating profit margin of 29 percent for the third quarter, compared with the 27 percent average of at least nine analyst estimates compiled by Bloomberg. Mobile traffic, which surpassed desktop traffic, is increasing its contribution to total sales as the company invests more and joins forces with other operators to challenge Alibaba Group Holding Ltd., the world’s biggest e-commerce platform.

The price gain “is mainly due to its better-than-forecast profit margins, as analysts had expected a narrower margin due to increasing expenses,” Ming Zhao, the founder of 86Research Ltd., said by phone yesterday from Shanghai. “Baidu’s growing mobile platform is flexing its muscles and has become a bigger contributor to revenue.”

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Mobile Searches

Baidu got 36 percent of its sales from mobile searches last quarter, up from 33 percent in the three months ended in June, Chief Executive Officer Robin Li said on a conference call with analysts yesterday.

The company posted third-quarter net income of 3.88 billion yuan ($630 million) on Aug. 29, exceeding the 3.46 billion-yuan average estimate of eight analysts’ projections compiled by Bloomberg. Revenue climbed 52 percent for the period to 13.5 billion yuan.

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At least seven analysts raised their price estimates for Baidu shares after the company reported quarterly results, with an average 12-month target of $271.78, data compiled by Bloomberg show. Thirty-two out of 37 analysts recommend investors buy the ADR, while just one has a sell.

Cheetah’s ADRs jumped to $20.11, the biggest rally since Sept. 24. The company is scheduled to report third-quarter results on Nov. 10. Jumei advanced to $24.28, closing at the highest level in two weeks.

Kandi Technologies Group Inc., a maker of alternative-energy cars, climbed 4.3 percent to $16.16, the highest level since Sept. 10.

The company, based in Jinhua in the eastern Zhejiang province of China, said in a statement yesterday it will start a car-share program in Chengdu with the delivery of 1,000 of its electric vehicles.

The iShares China Large-Cap ETF, the biggest Chinese exchange-traded fund in the U.S., added 0.1 percent to $39.45, extending its gain into a third day. The Standard & Poor’s 500 Index rose 0.6 percent as faster-than-estimated U.S. growth fueled speculation the economy is strong enough to withstand higher interest rates.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.netMarie-France Han, Boris Korby

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