Oppenheimer analyst Jason Helfstein weighs in on Baidu Inc (ADR) (NASDAQ:BIDU), noting that the Chinese internet giant “faced a challenging” second quarter, with revenue seeing a 10% increase to $2.7 billion, 2% below the company’s guidance, yet, in line with consensus, and with earnings 3% above consensus. However, even with third quarter revenue guidance 9% below what the Street projects and revenue substantially decelerated from its first quarter surge, Helfstein reiterates a Buy rating, thanks to a crucial advantage from lack of competition in the Chinese market.
This past quarter, an environment not flooded with competition was on the web corporation’s side, and was one reason earnings reached above what the Street initially expected, in addition to the benefit of well-regulated expenses. Meanwhile, new policies might shake the sails of Baidu’s revenue ship, affecting search growth via a raise in taxes and pressure ultimately on guidance. Another negative factor highlights health care gone awry. Troubling publicity has shined a spotlight on Baidu after a cancer patient found a sponsored medical center through Baidu’s online services and ultimately died after receiving treatment.
Yet, from Helfstein’s standpoint, “…these short-term headwinds do not change longterm view, as BIDU operates a monopoly on search in China, where advertisers have few digital advertising options.” In a game of monopoly, Helfstein sees Bidu winning in a no-competition zone, headquartered in Beijing, China. Consider this Boardwalk, where the finance game is sharply in Bidu’s favor.
Furthermore, Helfstein continues, “On the contrary, the government’s internet scrutiny should drive industry-wide reform, shaking out smaller, sub-scale players, allowing BIDU to consolidate its leadership position. In fact, if this results in improved ad quality, CTRs should improve, driving higher CPCs, with reduced ad load.”
Because the Chinese market puts Bidu’s state of finances in a robust position, the company can in turn take its investments one step further, placing funds once again in drivers of revenue momentum for the future. Helfstein points to AI, autonomous cars, and the Cloud as factors all in Bidu’s favor in the next quarters to come.
According to TipRanks, Jason Helfstein is an almost five-star ranked analyst, ranked #324 out of 4,085 analysts. Helfstein to date has earned a success rate of 53%, and averages a profit of 6.9% in his average returns.
TipRanks analytics exhibits Baidu Inc stock as a Strong Buy, with 11 out of 13 analysts polled in the last 3 months rating a Buy, and 2 remaining maintaining a Hold. The average price target is $192.5, marking a 20% upside from where the stock is currently trading.
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