Moody's Affirms Ratings on Baidu (BIDU) Amid Slower-Growth Q2

August 17, 2016 7:29 AM EDT

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Moody's Investors Service says that Baidu Inc.'s (Nasdaq: BIDU) posting of slower growth of 10% for both revenue and EBITA in the second quarter of April-June has no immediate impact on its A3 issuer rating and stable outlook, while both metrics are likely to recover a year from now in 2H 2017.

Furthermore, Baidu's experiencing of business interruptions from the incident surrounding the way it posted medical advertisements and the expected negative impact on its revenue have no immediate impact its rating and outlook.

"The company's expectation of muted revenue growth in the coming few quarters is credit negative, but Moody's believes that such an impact will prove temporary and that the company will improve operations to reduce the occurrence of similar events," says Lina Choi, a Moody's Vice President and Senior Analyst.

"And while its credit metrics could be weak for its A3 rating over the next 9-12 months, Moody's expects -- as indicated -- them to slowly recover in 2H 2017, and notes that the company's prudent financial policy preserves its solid debt servicing capacity," adds Choi.

Moody's conclusions were contained in its just-released report on Baidu, "Slower Revenue Growth Has No Immediate Rating Impact".

Moody's says that the company has a track record of maintaining strong balances of cash and short-term investments, which consist of principal protected and return guaranteed financial instruments.

Furthermore, Moody's says that the fundamental drivers supporting Baidu's A3 rating have not changed: (1) its position as the dominant internet search engine in China; (2) its stable revenue stream from keyword search advertising; (3) favorable industry fundamentals and its large target market support growth; and (4) its strong cash flow generation and conservative financial policies that result in a strong balance sheet.

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