Baidu gets ‘ buy’ rat­ing from street

China Daily (Canada) - - ACROSSAMERICAS - By JACK FREIFELDER in New York jack­freifelder@chi­nadai­lyusa. com

Baidu Inc — China’s leading web and search en­gine ser­vice — re­ceived a “buy” rec­om­men­da­tion from two an­a­lysts who set a 12-month price tar­get of more than $200 af­ter the com­pany re­ported fourthquar­ter and full-year rev­enue growth.

Ge­orge Askew, an an­a­lyst who cov­ers Baidu for bro­ker­age and in­vest­ment bank­ing firm Stifel, Nicolaus & Co Inc, up­graded Baidu from a “hold” and gave the com­pany a 12-month tar­get price of $238, “based on Baidu’s very rapidly grow­ing mo­bile search fran­chise”.

“We be­lieve Baidu is build­ing the dom­i­nant fran­chise in mo­bile search in China, which we now view as a sep­a­rate busi­ness from desk­top search,” Askew said in a Feb 27 re­search note. “Through ag­gres­sive in­vest­ments in in­no­va­tion and sev­eral strate­gic ac­qui­si­tions, Baidu has built a mo­bile search ecosys­tem with limited neart­erm com­pe­ti­tion and strong mo­men­tum that should fuel rev­enue growth go­ing for­ward.”

The com­pany’s 12-month to­tal rev­enue climbed to $5.27 bil­lion and its fourth quar­ter rev­enue was $1.57 bil­lion — year-on-year in­creases of 43.2 and 50.3 per­cent, re­spec­tively. On­line mar­ket­ing rev­enues for the fourth quar­ter grew by more than 50 per­cent in 2013 to $1.56 bil­lion.

Robin Li, chair­man and CEO of Baidu, said “2013 was a mile­stone year” for the Bei­jing­based com­pany.

“Q4 was a good end to a trans­for­ma­tive year for Baidu,” Li said dur­ing the com­pany’s earn­ings re­port con­fer­ence call. “Mo­bile has now be­come a sig­nif­i­cant part of our rev­enue mix, and the main fo­cus for us is to cap­ture the vast op­por­tu­ni­ties the Chi­nese In­ter­net mar­ket pre­sented to us. Yes, it’s a very com­pet­i­tive mar­ket but we see lots of room for growth.”

Baidu is in­vest­ing in ap­pli­ca­tions for map­ping and search ser­vices as it com­petes against other In­ter­net com­pa­nies, in­clud­ing Ten­cent Hold­ings Ltd, for China’s grow­ing In­ter­net users.

Bloomberg News re­ported on Feb 26 that Baidu ac­counted for 76.9 per­cent of search en­gine queries in China in the fourth quar­ter of 2013.

How­ever, Askew said the out­look for Baidu in the first quar­ter of 2014 is not en­tirely rosy.

“Our up­grade is based on the strength and growth of [Baidu’s] mo­bile search fran­chise, and not near-term profit per­for­mance,” Askew said. “1Q14 rev­enue guid­ance is strong, but mar­gins will be un­der se­vere pres­sure due to heavy in­vest­ments.”

Echo He — a se­nior eq­uity an­a­lyst who cov­ers Baidu for Maxim Group LLC, a New York-based se­cu­ri­ties and in­vest­ment man­age­ment firm — also gave Baidu a “buy” rat­ing and set a tar­get price of $200 for 2014.

“Baidu is per­haps China’s best ad plat­form in col­lect­ing mo­bile ad dol­lars,” He said in a Feb 27 re­search note. “Mo­bile rev­enue ex­ceeded 20 per­cent of to­tal rev­enue [in 2013], up from the 10 per­cent Baidu re­ported in April.”

“We es­ti­mate its op­er­at­ing mar­gin to de­crease steadily and con­sec­u­tively in the next few years,” He added.

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