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Alibaba (BABA), Baidu (BIDU) Stocks Still Expensive?


By Vikas Shukla

Alibaba Group Holding Ltd (NYSE:BABA) stock is down 18% year-to-date while Baidu Inc (ADR) (NASDAQ:BIDU) has declined more than 8%. But Credit Suisse analysts Sakthi Siva and Kin Nang Chik believe that stocks of the two Chinese technology giants have not bottomed yet. Analysts’ earnings revisions and a look at Alibaba and Baidu’s valuation suggest that the stocks are still expensive.

Alibaba IPO

Alibaba trading at 438% premium to companies in Asia

Using price-to-book versus return on equity as a metric, Credit Suisse analysts found that Baidu was trading at 294% premium to companies in Asia Pacific, excluding Japan. Though its premium has declined from 433% in November last year, its premium in 2012 had plunged below 200%. Alibaba doesn’t have a long trading history. The Hangzhou-based e-commerce giant is trading at 438% premium to companies in Asia Pacific.

What’s more, Wall Street analysts have been revising down their EPS estimates for the two companies. Alibaba has seen 7% downward revision in earnings estimates since September. Baidu’s EPS estimate has been revised down by a whopping 13.9% this month after the search engine giant issued a weak guidance for the current quarter.

Massive lockup expirations looming for Alibaba

Baidu expects its first-quarter revenue to increase 35.4% to $2.1 billion. Analysts were anticipating its Q1 revenue to jump 42% YoY. Shares of Alibaba declined almost 10% after the company reported December quarter revenues that missed the consensus estimates.

Alibaba stock was also hurt by regulatory scrutiny into its business practices. Chinese regulators accused the company of not doing enough to prevent the sale of fake goods on its platforms. Upcoming lockup expirations may also affect Alibaba stock. A lockup on as many as 429 million ordinary shares of the company will expire on March 19. Another 1.58 billion Alibaba shares will become available for sale in the public market on September 21.