Baidu (BIDU) Slammed as Competition Heats Up

August 23, 2012 12:50 PM EDT
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Price: $173.44 -1.5%

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    17 Buy, 12 Hold, 4 Sell

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Shares of Baidu, Inc. (Nasdaq: BIDU) are under heavy pressure mid-day Thursday after an intra-day downgrade from Deutsche Bank, which cited intensifying search engine competition.

Deutsche Bank cut the shares from Buy to Hold and slashed their price target from $186 to $137.

Specifically, the firm said their checks shows that Baidu lost 4-8 percentage points search traffic market share to Qihoo (Nasdaq: QIHU), which just launched its search engine solution on Aug 16, 2012.

The firm notes that Qihoo has a large browser user base that was 51 percent of the Chinese Internet population in the second quarter. Also the user experience of Qihoo's search engine is "reasonably good."

The firm expects Baidu to continue to lose traffic share to Qihoo in the next 2 quarters before Qihoo's traffic share likely stablizes at 15-18 percent.

Deutsche Bank estimates the revenue and EPS impact to be 6 percent and 9 percent in 2013. The EPS impact for Baidu will be higher than the revenue impact as the loss of traffic has no accompanying reduction in Baidu costs, the firm said. The firm cut 2013 and 2014 EPS by 9 percent and 10 percent and their 2013 EPS is now 10 percent below the consensus.

Baidu is down 7.3 percent.

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