Baidu gets 'buy' rating from street

Updated: 2014-02-28 13:12

By Jack Freifelder in New York (China Daily USA)

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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 fourth-quarter 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 near-term 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 Beijing-based 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.

(China Daily USA 02/28/2014 page2)