Historical Price-Reaction Patterns Following Baidu Q2 Earnings

Chinese search engine operator Baidu (BIDU) will report 2Q10 earnings on July 21 after market close. My research has revealed some interesting price-reaction patterns following its earnings releases: First, Baidu has released 20 quarterly earnings reports since its IPO, and its share price has risen 12 out of 20 times for the next trading day following the earnings announcements, representing a 60% "winning percentage" (see chart below). Second, since 1Q07, Baidu has released 13 quarterly reports, and its shares have risen 10 out of 13 times for the next trading day, representing a 77% winning percentage. Third, since 1Q07, for three

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Playing Baidu Earnings With Options

Baidu (BIDU) is a fun company. The stock has been a great performer over the years, especially for those that have owned it since the beginning. It is a play on internet, advertising and China.

Here we will discuss an idea of how to play the earnings release that is scheduled for after the bell today.

The current expected move for the stock is about $9. That puts the stock at either $65 or $83 by August’s option expiration day. The way to determine the expected move is by adding the price of the two “at the money” options together. With the stock currently trading at $74 a share we can take the $72.50 call plus the $75 put and subtract from there the $2.50 of intrinsic value and that gives us $8.75.

Here is the chart for BIDU (click to enlarge):

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Baidu 2Q10 Earnings Review

Q2 results beat consensus. As I expected, Baidu (BIDU) reported strong 2Q10 earnings on July 21. In Q2, Baidu generated $282.3 million revenue, beating guidance of $268.1-274.0 million, Wall Street consensus of 276.7 million, and my estimate of $280 million. GAAP EPS came in at $0.35, above consensus of $0.31 and my estimate of $0.33. The outperformance was mainly due to Baidu's quarterly customer net adds reaching an all-time high of 33,000 and lower-than-expected traffic acquisition cost boosting profit margins.

Q3 guidance in line with actual growth in 3Q08 and 3Q09. For 3Q10, Baidu guided revenue of

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