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Baidu Analysts Shrug Off Soft Growth Guidance, iQIYI SEC Probe As Short-Term Headwinds

Shanthi Rexaline
·2 mins read

Chinese search engine Baidu Inc ADR Class A (NASDAQ: BIDU) reported better-than-expected second-quarter results Thursday, but its shares slid, apparently in reaction to soft guidance and an SEC investigation into its video streaming subsidiary IQIYI Inc (NASDAQ: IQ).

The Baidu Analysts: Benchmark analyst Fawne Jiang reiterated a Buy rating on Baidu with a $165 price target.

Mizuho Securities analyst James Lee maintained a Buy rating and $170 price target. Baidu is Mizuho's top Chinese internet pick. 

Benchmark On Baidu's Transition To Super App: Baidu's second-quarter revenue upside came from Baidu Core, and a meaningful EPS and margin beat was achieved on the back of significant gross margin improvement and prudent cost control efforts, Jiang said in a Friday note. 

The below-consensus third-quarter revenue guidance reflects a temporary setback for Baidu Core due to a resurgence of COVID-19 in Beijing, ongoing macro uncertainties and a soft outlook for iQIYI, the analyst said.

"We are incrementally positive on Baidu Mobile App, as it maintained solid user momentum and in-app revenue growth thanks to a continued effort to improve user experience through expansion of content and service offerings." 

Baidu's transition from search to a Super App will likely pave the way for a sustainable turnaround of its core growth, driven by growing user traffic and monetization potential, Jiang said. 

Baidu may continue to ramp new AI monetization, which could emerge as a meaningful growth driver going forward, according to Benchmark. 

View more earnings on BIDU

Baidu's Headwinds Are Short-Term, Mizuho Says: The third-quarter core revenue guidance for a 2% year-over-year decline, in-line with the consensus estimate, is due to slower recovery in offline industries as a result of a second wave of COVID, Lee said in a Friday note. 

The SEC investigation into iQIYI is an overhang, but Baidu said it is confident about the streaming subsidiary's business practices and governance and anticipates a positive outcome, the analyst said. 

Mizuho said it views the headwinds as short-term and maintained its fiscal year 2022 core EBITDA estimate at 37.5 billion yuan ($5.4 billion). 

BIDU Price Target: Baidu shares were trading down 6.97% at $115.89 at last check Friday. 

Related Links:

Why This Analyst Recommends Buying Amazon, Baidu, Facebook And Uber Following COVID-19 Battering

4 Reasons Alibaba's Stock Is A Buy Right Now

Public domain photo via Wikimedia. 

Latest Ratings for BIDU

Date

Firm

Action

From

To

Jul 2020

KeyBanc

Maintains

Overweight

Jul 2020

Mizuho

Maintains

Buy

Jun 2020

KeyBanc

Maintains

Overweight

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