Baidu (BIDU) Declares $1B Buyback: Should You Buy? - Analyst Blog
Reportedly, Baidu, Inc. BIDU recently approved a share repurchase authorization of up to $1 billion. The company expects this program to be completed over the next 12 months.
The number of shares to be repurchased and the timing will depend on the prevailing market conditions and other corporate considerations. China’s largest search engine plans to use its existing cash balance to fund the buyout.
The strength of Baidu’s business model reflects its commitment toward returning value to shareholders using strong cash generation capabilities. We believe that the continued share buybacks will not only increase investors’ enthusiasm regarding the company, but also help it to maintain its strong financial position.
At the end of second quarter, the company had cash and short-term investments balance of RMB75.61 billion versus RMB58.57 billion in the prior quarter. Cash flow from operations was RMB4.1 billion as against RMB3.6 billion in the past quarter.
Baidu offers Internet search services in the Chinese language as well as a Chinese language search platform for businesses to reach their customers. In the recently reported second-quarter results, the company’s revenues of RMB16.6 billion ($2.67 billion) jumped 38.3% year over year, backed by new offerings in search and app distribution. However, the bottom line missed the Zacks Consensus Estimate by 16 cents due to higher-than-expected research & development (R&D) expenses.
We believe that Baidu has a strong balance sheet, which will help it to capitalize on investment opportunities. However, higher promotional expenses, heavy investment to develop a user base for its online to offline (O2O) business and stiff competition on its own search platform from the likes of Qihoo 360 Technology and Sohu’s Sogou search engine remain the concerns.
Currently, Baidu has a Zacks Rank #5 (Strong Sell). Some stocks that are performing well at the current levels are LendingClub Corp. LC, Healthstream Inc. HSTM and Google GOOGL. LendingClub and Healthstream sport a Zacks Rank #1 (Strong Buy), while Google carries a Zacks Rank #2 (Buy).
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