Baidu’s stock jumps after results, analysts stay bullish
Tech conglomerate Baidu’s progress in its non-advertising businesses could further propel its shares to new heights, top analysts say.
- Baidu, Inc (Nasdaq: BIDU) share price flies 14.1% to US$339.91 a share
- Analysts favour the Beijing-based tech frontrunner’s non-advertising prospects
- HSBC’s target of US$374 per share is among the highest
- Trade BIDU, long or short, with an IG account
Gleaming reports lift investors’ spirits
Baidu’s stock price jumped 14.1% to US$339.91 on Friday, after 17 million shares changed hands.
The counter spiked 71% during 2020, and has leapt another 57% so far in 2021.
The latest boost came amid market exuberance following the Chinese tech giant’s guidance and fourth-quarter results unveiled last Wednesday evening.
Its earnings beat expectations, while Q4 2020 total revenue grew 5% year-on-year to RMB 30.1 billion and was in line with consensus.
Analysts stayed overwhelmingly optimistic - 33 rated Baidu ‘buy’, six said ‘hold’, and two issued ‘sell’ calls as of Sunday, according to Bloomberg data. Their average target price was US$338.12.
Rosy outlook for BIDU?
For Q1 of 2021, the search-engine leader’s management guided that revenue could grow 15-26% on the year to RMB 26-28.5 billion.
OCBC said the guidance is ‘encouraging’ and ‘underscores Baidu’s recovery as macro conditions improve and its focus on innovation bears initial fruits’.
In the mobile ecosystem, many of its advertising verticals are also growing, such as in healthcare, education, internet, real estate, retail, and home furnishing, OCBC noted, increasing its fair value to US$355, from US$269, with a ‘buy’ recommendation.
HSBC pointed to the improvement in Baidu’s core business, which includes artificial intelligence (AI) and search. The bank more than doubled its target price to US$374, from US$173, and kept its ‘buy’ rating.
Does non-advertising have ‘huge potential’?
Baidu highlighted that its non-advertising businesses - comprising internet value-added services, AI cloud, intelligent driving, and more - was 10 times the size of the online-marketing arm, with the former’s growth rate expected to be triple that of online marketing in the next few years.
Jefferies analysts were ‘impressed’ by the 52% year-on-year climb in non-advertising revenue last quarter, led by AI cloud. The segment ‘has huge potential to be unlocked’, they added, maintaining ‘buy’ and upping their target from US$268 to US$371.
HSBC wrote that Baidu’s investment in innovation has paid off, as seen in the 114% share price rally since its autonomous-driving unit Apollo in December 2020 revealed important milestones with concrete operating metrics and targets.
Baidu shares will likely rise further upon Apollo’s commercialisation and if it becomes a leader in autonomous driving and smart transportation, HSBC believes.
Meanwhile, Jefferies noted that the monetisation of Apollo was still nascent, with most of its products in their early stages.
What might weigh on Baidu’s shares?
Downside risks for the stock are near-term margin pressure due to macroeconomic uncertainty, a redesign of the search system and increased content spend, and intensifying competition for traffic acquisition, said HSBC.
Jefferies similarly believes a downside scenario would be a worse-than-expected revenue growth for search and feeds amid macroeconomic headwinds.
Any delay in monetising autonomous-driving initiatives or Baidu’s conversational AI system DuerOS could also be a drag on the share price, Jefferies added.
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