Baidu Leads Internet Stocks’ Rally on Earnings: Overnight

Baidu Inc. (BIDU) jumped the most in nine months, leading gains in Chinese Internet companies traded in New York, after second-quarter profit at the owner of China’s largest online search engine exceeded analysts’ estimates.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. rose 0.4 percent to 84.63 yesterday in New York. Baidu’s 7.3 percent gain was the most since October. Yingli Green Energy Holding Co. tumbled to a record low, topping declines among Chinese solar makers on the gauge. E-Commerce China Dangdang Inc. (DANG) surged the most in a month and and 21Vianet Group Inc. (VNET) climbed more than 4 percent.

Second-quarter net income at Baidu jumped 70 percent to 2.77 billion yuan ($436 million), beating the average 2.49 billion yuan estimate of 10 analysts surveyed by Bloomberg, the company said on July 23 after the market closed. Shares fell 3.3 percent in the two days before the earnings were reported. China said last week that net income for state-owned companies dropped 12 percent in the first half while gross domestic product expanded last quarter at the slowest pace in three years.

“Baidu’s results helped boost Chinese Internet names, which have pulled back a lot in the past few months on concern China’s economy has slowed faster than expected,” said Tim Cunningham, who helps oversee $79 billion, including Chinese stocks, at Thornburg Investment Management Inc. in Santa Fe, New Mexico. Baidu’s earnings “were good enough to help alleviate people’s concern,” he said.

China ETF Slides

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slipped for a third day, losing 0.4 percent to $32.48. The Standard & Poor’s 500 Index (SPX) fell 0.9 percent to 1,338.31 amid concern Europe’s debt crisis is worsening after Moody’s Investors Service cut the outlooks of Germany, the Netherlands and Luxembourg on July 23.

Baidu’s American depositary receipts closed at $114.95 yesterday after gaining as much as 12 percent to $120.12. At least 13 analyst reiterated recommendations of buying the stock yesterday, and one maintained a hold, Bloomberg data show.

The Beijing-based company forecast third-quarter sales will grow as much as 54 percent to 6.41 billion yuan. That compares with a 6.39 billion-yuan average of analysts’ estimates compiled by Bloomberg prior to the earnings announcement.

Baidu will consider making acquisitions as it aims to offer new services to to users at a faster pace, Chief Executive Officer Robin Li said in a conference call with analysts after it reported earnings. The company had more than 350,000 customers for its online advertising services at the end of the second quarter, increasing 9.7 percent from three months earlier, Li said.

Dangdang, Ctrip

In the second quarter, Baidu accounted for 78.6 percent of China’s search-engine market by revenue, compared with 15.7 percent for Google Inc., according to researcher Analysys International.

E-Commerce, China’s largest online book seller known as Dangdang, jumped 9.5 percent to $5.40, the biggest gain since June 15. 21Vianet, which runs Internet data centers in China, climbed 4.2 percent to a three-day high of $10.

Online travel agency Ctrip.com International Ltd. (CTRP) increased 4.1 percent to $14.90, the highest price in a week. Its smaller competitor Elong Inc. (LONG), whose biggest shareholder is Expedia Inc. (EXPE) in the U.S., gained 3 percent to $11.59.

These Internet stocks “are in lockstep with each other,” Eric M. Jackson, founder and managing member of Ironfire Capital, a Naples, Florida-based hedge fund that invests in Chinese stocks, said on the phone yesterday. “Even if the earnings are good and help the stocks to rally in the short term, we’ll continue to see more economic slowdown in China and more fears about Spain or whatever the headline of the morning is. All those things will continue to hurt these names.”

Yingli, LDK, Trina

The preliminary reading for a purchasing managers’ index released yesterday by HSBC Holdings Plc and Markit Economics was 49.5 for July. That would compare with a final number of 48.2 in June. A final reading below 50 would also cap a nine-month run, the longest in the index’s eight-year history and surpassing the stretch from August 2008 to March 2009.

ADRs of Yingli, the world’s sixth-largest silicon-based solar module producer, tumbled 7.9 percent to $2.10. It was the lowest level since the company, based in Baoding in China’s Hebei province, had its initial public offering in June 2007.

Italy’s solar market faces “disaster” as a new budget for solar incentives may be reduced to less than half of the intended amount, “significantly” reducing the outlook for the nation’s installations over the next three years, DigiTimes reported yesterday, citing IMS Research.

LDK Solar Co. fell 5.6 percent to $1.53 while Trina Solar Ltd. (TSL) sank 5.5 percent to $5.3, the lowest level since March 2009.

The Shanghai Composite Index (SHCOMP) of stocks in mainland China added 0.2 percent to 2,146.59 yesterday, rebounding from the lowest level since 2009.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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