Why Baidu Missed the Dow's Rally
Feb 5th 2013 9:00PM
Updated Feb 5th 2013 9:05PM
Recently, when it comes to the stock market, what comes down must go back up. Stocks managed to erase much of their losses from Monday's session as positive earnings announcements helped investors get back a bit of their optimism about the market. Although the Dow Jones Industrials finished well off their highs and didn't manage to close above the 14,000 level, they nevertheless notched a nearly 100-point gain. All but two Dow components rose.
One of those two Dow losers was IBM , which fell more than half a percent. The company tapped the credit markets for $2 billion in floating-rate debt, which is a somewhat questionable move given that rates on fixed debt are still at incredibly low levels. Yet with the opportunity to pay less than the prevailing LIBOR rate on its two-year notes, IBM likely believes that rates will stay low long enough to avoid too much risk. Another possible reason for the drop was Oracle's purchase of Acme Packet, in which Oracle hopes to mimic IBM's strategy of being a one-stop shop for information technology. That's a threat to IBM, and the fight is only likely to get tougher as more players try to follow the same game plan.
Baidu , though, saw much bigger declines, falling more than 10% after announcing earnings that had disappointingly slow growth. Given that the Chinese Internet search giant has grown at such a strong clip for so long, guidance for the first quarter that fell short of analysts' consensus figures was enough to scare shareholders into selling. Eventually, Baidu will mature and see growth slow, but despite rising competition, it maintains a strong hold on its home market and has had a track record of quashing competitive pressures in the past.
Finally, NII Holdings fell more than 8%. The company, which focuses on the Latin American telecom market, projected 2013 revenue that fell well short of what Wall Street expected. With slow subscriber growth and plans to raise further debt, the company isn't holding up well in a highly competitive market that includes some of the strongest players in Latin American telecom.
Will Baidu recover?
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The article Why Baidu Missed the Dow's Rally originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Baidu. The Motley Fool owns shares of Baidu, IBM, and Oracle.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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