RunawayTrader

Baidu Has Been Languishing Lately — and That Could be a Sure Sign a Comeback is Due

BIDU is a stock I play a lot. The reason is simple: high beta; lots of volatility. Sure, much of that volatility has been trending down in recent days, but this stock always has a way of bouncing back at just the point when others traders (those folks we call “weak hands”) are tempted to shed some pain by selling off.

It’s my hope and my prediction that the bounceback will happen this week. First, some history.

BIDU has been sailing along famously since it went public in August 2005. The first-day trading range (I was there) was astonishing. The low for the day was $66. The high was $151.21, and it closed at $122.54. Now that’s volatility.

Ever since that day, BIDU has been one, thrilling ride. Even up to May 12, 2010, when it declared a 10:1 stock split as the last traded at a phenomenal $714.17.

The road has been a bit bumpier in recent months. It’s hit a high of about $83 but it’s taken a beating in the past month and closed Friday at $67 and change.

A portion of that sell-off was caused by the on-again, off-again spat that Google is having with the Chinese government, Baidu’s homeland.

Google announced in January that it might leave China because of censorship concerns and a hacking episode that it said originated in the country. But it’s been bouncing around more recently as Google continually shifts its position.

In one misguided attempt, Google closed its China-based search engine in March and began routing users to its unfiltered site in Hong Kong. Google was hoping that shift might maintain its technological toehold in one of the Internet’s most important markets while sticking to its position as guardian of free-speech.

Did it work? I guess not.

In an attempt to make amends with China, Google last week stopped automatically redirecting traffic from mainland China to its Hong Kong site after the government warned the maneuver could result in the loss of the company’s Internet license in the country.

That issue is an important one for BIDU and with each Google maneuver, BIDU shares react accordingly. Analysts said Baidu could win as much as half of Google China’s search revenue if Google loses it license. That would add as much as $330 million annually to Baidu’s top line, representing a more than 50 percent increase on 2009 revenue of 4.45 billion yuan ($654.8 million).

Earnings May Provide Some Answers

My guess is that by the time BIDU announces earnings, the Google question will be resolved, one way or another. Google will NOT throw away the China market; it’s just too big to be ignored, principles of free speech notwithstanding.

Meantime, I also expect that BIDU will blow away the numbers from July 22 when it reports earnings after the close. EarningsWhispers.com says 91% of visitors think there’s an upside surprise in store.

Meantime, I’m watching the Google charade, the Beijing response (or retaliation, if you’re taking the hard line), and waiting share price to rise 5-10 points between now and d-day on the 22nd.

Place your bets. The wheel is spinning.