BIDU reported earnings of 95 cents a share - up almost 12% from Q1-12 but 8 cents shy of the $1.03 consensus. The main reason for the miss was that despite the 40% revenue increase, R & D expenses soared by 83%. The company had announced three months ago that R & D would balloon this year as the company wants to spend more on mobile apps and to distance itself from its smaller competitor which is 1/8 its size.
BIDU didn't quantify last quarter just how much R & D would balloon by; I hardly think that analysts were looking for an 83% increase. Had R & D remained the same as Q1-12, earnings per share would have come in at $1.09 - a very healthy 28% year-over-year increase.
InQ1-13, the company also consolidated a recently-purchased online video company which is still losing money. Although currently unprofitable, this unit is expected to pay dividends down the road.
But despite the HUGE R & D ramp-up and the consolidation of the video unit this year but not last year, earnings still rose by 12% year-over-year. Many many companies would love to be able to show such an earnings increase; much less in such an anomalous quarter. The stock is selling at the same multiple relative to expected 2014 earnings as 4% earnings grower Pfizer.
Can anyone spell OPPORTUNITY? By the way, I am still up on my BIDU investment from my March 25, 2013 inception date. In the fullness of time, I expect to earn even more on BIDU than the half million dollars in profits that I walked away from with PFE..