Baidu Drops as Forecasted Earnings are lower than Estimates

The benchmark index of the Chinese stocks traded in United States slumped to its lowest level in this year, led by the drops of the most used search engine of the Asian country, Baidu. The investors are concerned that Baidu is all set to spend more money for developing the technology, thereby sacrificing the overall profitability.

Incidentally, the benchmark gauge for the most traded Chinese shares in US, the iShares FTSE China 25 Index declined by 0.1% and is at 97.86 currently. This is the lowest close for the gauge since 28th December. In last quarter, Baidu’s profit increase was the smallest in last 4 years and the shares tumbled by more than 11%. The stock was also downgraded and several analysts cut the price targets, adding to the negative sentiment. On the other hand, the benchmark gauge of the US stocks, the Standard & Poor’s 500 Index jumped up by 1.1% and is at 1511.29 currently. The gauge was helped as Dell Inc. agreed to be taken private.

On 4th February, Baidu officials announced that the company will continue to invest for a better network infrastructure. It will also invest in video business and mobile search tools in 2013. The first quarter revenue of Baidu is expected to be at $945.4 million, lower than the initial expectations set at $969 million.

The American depositary receipts of Baidu went down by 10% and are at $95.51 currently. Incidentally, this marks the biggest single day retreat for the company since September, 2011. Aaron Kessler, the analyst of Raymond James and Associates Inc. cut the recommendation on Baidu shares from outperform to hold. He stated that he is concerned over the prospects of Baidu in mobile search sector and as the profit margins are kind of low as well, he has been prompted to take this decision.

Sohu.com, a big competitor to Baidu in online search sector experienced decline for the 2nd day straight as the first quarter profit of the company is expected to be lower than the estimates of the analysts’. The shares experienced a slump of 3.1% and are at $45.05 per share now.

The biggest airlines company in Asia by the passenger numbers, China Southern posted a decrease of 1.9% and is at $28.95 per share now. Eastern Airlines shares declined by 0.8% and are at $22.55 now.