BofA/Merrill Lynch analyst Eddie Leung reiterated a Buy rating and boosted his price target on Baidu (NASDAQ: BIDU) to $242.00 (from $203.00) following strong Q2 results.

Leung said the results indicate two trends: 1) areas for investment shifting from marketing to headcounts, which should offer op leverage in the future; 2) average client spending posting solid growth as new initiatives like mobile started to contribute meaningfully.

The analyst also notes marketing costs as % of sales dropped ~2.5pptQoQ to 11.5% while R&D went up 1ppt QoQ to 14.6%. Average client spending grew 51% YoY (Chart 1), partly driven by mobile contribution risen to 30% of sales from 10% in 1Q13. Leung expects client spending to decelerate off a higher base in 3Q14, and net margins to largely stabilize at high-20% from 2H14.

The firm raises 2014 EPS from (CNY) 48.80 to 49.47 and trims 2015 EPS from (CNY)69.37 to $67.89.

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Shares of Baidu closed at $204.27 yesterday.