On Friday, Benchmark adjusted its outlook on Baidu (NASDAQ:BIDU), reducing the price target to $130 from $135 while retaining a Buy rating on the shares.
The move comes in response to the recent performance of the stock, which experienced a notable sell-off yesterday after the company reported third-quarter results for 2024 that did not meet expectations. The shortfall was mainly attributed to slower international growth and a profitability reset due to increased investments within its domestic market.
The company has confirmed its strategy of investing in its ecosystem, focusing on merchant support and logistics improvements. These initiatives, however, are expected to impact margins in the short term. Additionally, Baidu continues to navigate regulatory and compliance challenges in international markets, which have been a point of discussion and contributed to the negative sentiment surrounding the stock.
Despite the current market reaction, Benchmark highlights several positive aspects that investors should consider. The online marketplace of Baidu saw a 24% year-over-year increase in the third quarter, significantly surpassing industry growth rates and outperforming all publicly traded competitors. Moreover, while Non-GAAP Operating Margin Percentage (OMP) decreased by 9 percentage points quarter-over-quarter, it still showed moderate year-over-year expansion.
Looking ahead, Benchmark anticipates that Baidu will keep expanding its market share within China, forecasting mid-teen growth for the fiscal year 2025. The firm's analysis suggests that the current stock price, trading at 8.6 times their fiscal year 2025 earnings estimate, does not account for the potential of international growth. As a result, while acknowledging the challenges and potential for earnings volatility, Benchmark maintains its Buy rating but has adjusted the price target to $160, reflecting revisions in earnings and valuation multiples.
In other recent news, Baidu's recent financial developments indicate a mixed performance. The tech giant's Q3 results aligned with revenue expectations, but surpassed profit forecasts, with total revenues slightly declining to RMB33.6 billion. Despite a year-over-year decrease in advertising revenue, Baidu's AI Cloud business grew by 11%, boosted by AI-related revenue. This growth is expected to continue into Q4, according to Tiger Securities.
Tiger Securities also adjusted its stance on Baidu, lowering the price target from $135.00 to $120.00, while maintaining a Buy rating. The firm anticipates revenue growth re-acceleration beyond Q1 2025, due to anticipated improved macroeconomic conditions and plans to enhance monetization of AI search technologies.
Furthermore, Baidu's AI-first strategy remains a key focus, with significant advancements in AI-driven product transformation and autonomous driving technology. The company continues its share buyback program, with $161 million of shares repurchased since early Q3.
InvestingPro Insights
Baidu's financial metrics and market performance offer additional context to Benchmark's analysis. As of the latest data, Baidu's market capitalization stands at $28.62 billion, with a price-to-earnings (P/E) ratio of 10.8. This relatively low P/E ratio, coupled with a price-to-book ratio of 0.82, suggests that the stock may be undervalued compared to its assets and earnings potential, aligning with Benchmark's view that the current stock price might not fully reflect the company's growth prospects.
InvestingPro Tips highlight that Baidu's earnings per share have grown over the past year, which supports the company's fundamental strength despite recent market challenges. Additionally, analysts have recently revised their earnings upwards for the coming year, indicating a potentially positive outlook that contrasts with the recent stock sell-off.
These insights complement Benchmark's analysis, suggesting that while Baidu faces short-term pressures, there may be underlying value not fully recognized by the market. For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for Baidu, providing a deeper understanding of the company's financial health and market position.
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