Tài liệu Nothing But Net 2009 Internet Investment Guide 28 pptx

275 Global Equity Research 05 January 2009 Imran Khan 1-212 622-6693 imran.t.khan@jpmorgan.com Baidu, Overweight, $126.93 We maintain our Overweight rating on Baidu, the dominant ma

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Global Equity Research

05 January 2009 Imran Khan

(1-212) 622-6693

imran.t.khan@jpmorgan.com

Table 189: YHOO Annual Cash Flow Statement

$ in millions

Net Income 660.0 909.6 460.6 444.7

D&A 659.2 813.5 880.0 900.0

Stock Based Compensation 572.4 480.8 720.0 820.0

Other Non-Cash Items (149.8) 658.2 - -

Changes in Working Capital 366.5 658.2 (4.9) (14.7)

Accrued Charges - (28) 36.8 110.6

INVESTING CASH FLOWS

Capital Expenditures (602.3) (732.9) (750.0) (790.0)

Acquisitions (973.6) (209.2) - -

FINANCING CASH FLOWS

Shares Repurchased (1,583.9) (79.2) - -

Structured stock repurchase (250.0) - - -

Excess Tax Benefit from SBC (6.5) 78.9 - -

Other financing activities, net (18.6) (8.5) - -

Net Change In Cash (55.9) 1,273.7 1,055.7 1,095.0

Cash at Beginning 1,569.9 1,513.9 2,787.7 3,843.4

Cash at End 1,514.0 2,787.7 3,843.4 4,938.4

Source: Company reports and J.P Morgan estimates

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International Company Outlooks

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Baidu, Overweight, ($126.93)

We maintain our Overweight rating on Baidu, the dominant market leader in China's online search market, which is still in an early high-growth stage Our Dec-09 price target is US$300, which implies 67.6x FY08E, 50.7x FY09E and 35.3x FY10E diluted GAAP EPS, or 62.7x FY08E, 48.0x FY09E and 34.0x FY10E adjusted diluted EPS

• We believe online search advertising is still in an early high-growth stage in China, driven by: (1) rising Internet penetration, (2) significant growth in websites and pages, (3) higher search usage (due to greater mass of web content), and (4) large number of SMEs (with small ad budgets) turning to search

advertising (due to the higher ROI) We expect the paid search market in China to grow over 40% Y/Y in 2009 and 2010 each (following ~64% growth for 2008, as per our estimates)

• Baidu remains the dominant player in China’s search market with ~65% market share as of 3Q08 (as per iResearch estimates) and also the highest Internet traffic

in China (as per Alexa estimates) We expect Baidu to maintain its leadership in China due to: (1) our view that its products are tailored better to local needs (e.g., music search and Baidu Knows - community Q&A site), (2) its strong local brand name, (3) good relationship with the Chinese government, (4) its good Chinese search technology, and (5) it has among the widest distribution networks in China (a key to market development and driving sales), and is well ahead of competitors

in search

• We expect Baidu to see a negative impact in 4Q’08 and 2009 from the medical and pharmaceutical customer removal issue (following a CCTV report in mid-Nov on unlicensed entities advertising via Baidu), as these customers account for 10-15% of Baidu’s total revenue We believe the stock is likely to trade weakly in the near term until there is more clarity on the impact on 2009 However, we believe this recent “hiccup” is positive for Baidu in the long term, as Baidu is now taking the right steps to address the longer-term user experience and monetization issues, which should put the company on the right path to continue

to grow in the early-stage search market Thus, we remain positive on Baidu

• With the impact from the medical and pharmaceutical customer issue, we had revised down our ’08E/’09E earnings by 4% and 18%, respectively (on 10 Dec 2008) For 4Q’08, we expect total revenue of US$138.1M, up 2% Q/Q and 64% Y/Y, with gross margin of 62.2% (down from 66.4% in 3Q’08) and adj operating margin of 36.1% (down from 41.9% in 3Q08) We forecast GAAP diluted EPS of US$1.27, down 14% Q/Q but up 37% Y/Y

• 2009 Drivers: In our view, the following factors will drive shares in 2009: (1)

more clarity on 2009 impact from medical & pharmaceutical customer removal issue, (2) continued strong execution to drive sales and margins, (3) official launch of C2C ecommerce site, and (4) continued solid growth in China’s Internet usage and SME search adoption

Our financial estimates for Baidu are in the table below:

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Table 190: Baidu Financial Snapshot

$ in millions, except per share data

J.P Morgan

Revenue 138.1 471.2 667.2 947.2 103% 42% 42% EBITDA 62.5 218.4 307.1 449.7 114% 41% 46% GAAP EPS 1.27 4.44 5.92 8.49 85% 33% 43% Adj EPS 1.36 4.79 6.25 8.82 87% 31% 41%

Consensus

Revenue 141.7 463.6 674.7 945.7 100% 46% 40% EBITDA 66.2 217.2 310.7 414.1 113% 43% 33% GAAP EPS 1.40 4.57 6.40 9.16 90% 40% 43% Adj EPS 1.53 4.76 6.70 9.36 86% 41% 40%

Source: J.P Morgan estimates and Bloomberg *Note: Adj EPS excludes share-based compensation expense

Our Estimates and Outlook for 2009

We forecast net revenue of US$667.2M in 2009, up 42% Y/Y, and GAAP diluted EPS of US$5.92, up 33% Y/Y, or adjusted EPS (ex-share-based expense) of US$6.25, up 31% Y/Y We expect continued growth in both active online marketing customers and revenue per customer, though with relatively higher growth in number

of customers (as SME penetration remains very low – Baidu’s active customer base was 194k in 3Q’08, vs China SME base of ~40M)

On margins, we forecast gross margin at 60.4% for 2009 (conservative forecast as Baidu could potentially increase investment in bandwidth / servers for the long-term opportunities in China), down from 63.8% for 2008 We forecast TAC at slightly over 14% of revenue in 2009, up from ~13% in 2008 (as Baidu continues to sign deals that are positive to net revenue growth) We expect adjusted operating margin (ex-share-based expense) of 35.0% for 2009, down from 36.9% for 2008, and adjusted net margin of 33.0% for 2009, down from 35.4% for 2008

Our Estimates and Outlook for 2010

For 2010, we forecast net revenue of US$947.2M, up 42% Y/Y, and GAAP diluted EPS of US$8.49, up 43% Y/Y, or adjusted EPS of US$8.82, up 41% Y/Y We forecast gross margin at 59.5% (slightly lower Y/Y); adjusted operating margin of 35.0% (stable Y/Y) and adjusted net margin of 33.3% (also stable Y/Y)

Price Target, Valuation and Rating Analysis

We maintain our Overweight on Baidu, as it remains the market leader in China’s online search market, which we believe is still in an early high-growth stage Our Dec-2009 price target is US$300, which implies PEG of 1.3x, which we believe is reasonable given the strong China Internet usage growth and early stage of search advertising Our price target implies 67.6x FY’08E, 50.7x FY’09E and 35.3x FY’10E diluted GAAP EPS, or 62.7x FY08E, 48.0x FY’09E and 34.0x FY’10E adjusted diluted EPS

In addition, we believe earnings upside in 2009 could come from banner advertising, C2C ecommerce services and potential margin leverage

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Risks to Our Rating

Risks to our rating and price target include: (1) lower-than-expected online search spending in China, (2) large infrastructure-related (servers and bandwidth) spending, (3) near-term distributor transition in a couple of cities (FuShan and Dongguan in 2Q08), (4) unsuccessful ecommerce and Japan search initiatives, and (5) potential margin decline (from TAC increase, bandwidth cost increase, tax rate increase or significant labor cost increase)

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Table 191: BIDU Annual Income Statement

$ in millions

INCOME STATEMENT

2007 2008E 2009E 2010E

Adj Net Profit (ex-share-based exp) 88.8 166.6 220.4 315.4

Margins (%)

Sequential Growth (%)

Adj Diluted EPS 103.1 87.2 30.7 41.0

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Table 192: BIDU Quarterly Income Statement

$ in millions

1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08E 1Q'09E 2Q'09E 3Q'09E 4Q'09E

Adj EBIT (ex-share-based exp.) 11.1 18.1 23.2 26.0 23.3 44.6 56.8 49.9 45.7 58.2 63.3 66.4

Adj Diluted EPS (US$, ex-share-based exp.) 0.36 0.57 0.72 0.92 0.67 1.23 1.54 1.36 1.23 1.56 1.69 1.77 Margins (%)

Sequential Growth (%)

Source: Company reports and J.P Morgan estimates.

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Table 193: BIDU Annual Balance Sheet

$ in millions

Accrued Expenses and Payables 48 86 120 169

Other Current Liabilities 36 78 109 158

Additional Paid-in Capital 156 190 222 255

Tiêu đề	Nothing But Net 2009 Internet Investment Guide
Tác giả	Imran Khan
Trường học	J.P. Morgan
Chuyên ngành	Global Equity Research
Thể loại	Báo cáo
Năm xuất bản	2009
Thành phố	New York

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