Summit Research Cuts Price Target to $205 on Baidu.com (BIDU) Following 2Q15
Summit Research maintained a Buy rating on Baidu (NASDAQ: BIDU), and cut the price target to $205.00 (from $256.00), following 2Q15 results. Management guided 3Q15 revenue Y/Y growth to 34.4% - 37.4%, which is below consensus of 39%. Analyst Henry Guo believes that the guidance may prove conservative.
Guo commented, "While 2Q15 top and bottom came in strong as we expected, BIDU shares were pressured after hours mainly due to (1) soft 3Q revenue guidance, which implies a Y/Y growth of 34%-37%, decreasing from June quarter's 38%, and (2) guidance of dramatic increase of SG&A expenses during 2H15 to grow O2O business. While overall we remain positive on the company’s core search business, the visibility to ultimate fate of the company’s O2O initiative is limited, as we believe (1) Leading competitors such as Meituan and Dianping have early mover advantages and strong customer bases especially in lower tier cities where Baidu doesn’t have direct sales force presence. (2) Currently O2O consumers in China indulge in aggressive promotions and discounts, and we have concerns of profitability potential of this business segment near to medium term. (3) Considering the O2O competitive landscape in China, we believe the profitability drag due to O2O investment to Baidu financials will span multiple years, challenging management execution and investors’ patience. We maintain our BUY rating on BIDU but lower PT from $256 to $205, which is based on 23x P/E our 2016 EPS estimates."
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Shares of Baidu closed at $197.68 yesterday.