UPDATE 1-Analysts cut Baidu price target as outlook disappoints

Oct 27 (Reuters) - Wall Street analysts on Tuesday cut
their price targets on Baidu Inc (BIDU.O), after China's
dominant search engine forecast a sequential decline in
fourth-quarter revenue due to the transition to a new Internet
advertising technology.

Shares of the company fell percent as much as 20 percent in
pre-market trade Tuesday, after Baidu surprised investors when
it revealed transition to its new Phoenix Nest system will lead
to softer revenues into next year as customers adjust.
[ID:nSP458785]

This marks a rare stumble for Baidu, whose name is
practically synonymous with Internet search in China, and opens
a window of opportunity for others salivating for a piece of
the country's fast-growing online market.

"With only 36 days to move about 80 percent of revenue to
the new bidding system and customer-to-sales ratio of only
around 60:1, we believe earnings volatility in the fourth
quarter of 2009/first quarter of 2010 could be high," analysts
at J.P.Morgan Securities wrote in a note to clients.

On the other hand, a shorter transition time will likely
gather stronger momentum, creating a sense of urgency for
customers to switch, JP Morgan analysts said.

Baidu's Phoenix Nest technology, introduced in April, is an
overhaul of the company's keyword advertising bidding system
and is expected to improve Baidu's monetization of its search
results.

The Phoenix Nest bidding system is a more advanced system
and is likely to bring higher return on investments to
customers and revenue to Baidu, JP Morgan analysts said.

The company's growth is expected to accelerate in the
second quarter of next year, around six months after the full
transition to the Phoenix Nest bidding system, they added, and
urged investors to add Baidu shares on weakness for long-term
benefits of Phoenix Nest. Separately, Goldman Sachs analysts
said Baidu's decision to discontinue the old bidding system by
Dec. 1 is strategically justifiable, as running two bidding
systems in parallel is logistically complex, confusing for
advertisers, and weakens the bidding process.

Still, Goldman analysts expressed disappointment as
management did not communicate the risks around a faster
transition to investors sooner. Shares of Baidu, which closed
at $432.97 Monday on Nasdaq, were trading at $347.63 in
pre-market trade Tuesday.
The table below lists the price target changes on Baidu:
Brokerages Price Target ($) Rating

Current Prior
Bernstein 420 460 Outperform
Goldman Sachs 435 455 Buy
JP Morgan 460 480 Overweight
Susquehanna 450 380 Positive
(Reporting by Tenzin Pema in Bangalore; Editing by Anil
D'Silva)