On Monday, Citi has adjusted its price target for Baidu (NASDAQ:BIDU) shares, bringing it down to $176 from the previous $181, while retaining a Buy rating for the stock. This revision comes as a result of changes in advertising revenue expectations, despite a solid recovery in the travel industry that has supported advertising demand in the first quarter of 2024.
The firm has revised its forecast for Baidu's core advertising revenues, decreasing the growth estimate to 2% year-over-year, amounting to Rmb16.9 billion, which is a reduction from the prior estimate of 4%. This conservative adjustment is attributed to weaker sentiment in key industry verticals such as automotive, real estate, and franchising, which are significant advertisers on the platform.
Moreover, Citi has modified its projections for Baidu's cloud revenue growth, now anticipating an 8% year-over-year increase compared to the previously expected 12%. The revised forecast takes into account potential uncertainties in business demand that may affect revenue.
Looking into the second quarter of 2024, while seasonal factors are expected to contribute to solid quarter-over-quarter growth, uncertainties in advertising budget expenditures by certain industries have led to a cautious reduction in core advertising and cloud revenue estimates by 1% and 1.8% for the quarter, and by 0.7% and 2.5% for the full year 2024, respectively.
Despite the revisions, Citi's outlook suggests that Baidu aims to grow its advertising revenues faster than GDP growth in 2024. Following the estimate revisions, the sum-of-the-parts valuation (SOTP) for Baidu has been adjusted to the new target of $176, with the investment firm maintaining its Buy rating based on what it considers an undemanding valuation for the company's shares.
InvestingPro Insights
Analyzing the latest data from InvestingPro, Baidu (NASDAQ:BIDU) presents a compelling financial picture that aligns with Citi's positive stance. The company's adjusted market cap stands at $37.34 billion, reflecting a significant presence in the market.
With a P/E ratio of 14.22 and an even more attractive adjusted P/E ratio for the last twelve months as of Q4 2023 of 13.09, Baidu's stock could be considered undervalued, especially in light of its PEG ratio of 0.08 indicating potential for growth at a reasonable price.
The company's solid fundamentals are further evidenced by a robust gross profit margin of 51.69% and an operating income margin of 16.24% for the same period, showcasing efficient management and a strong competitive position in its industry. Additionally, Baidu's revenue growth of 8.83% year-over-year and a consistent gross profit of $9801.21 million underline the company's capacity for sustained earnings.
InvestingPro Tips suggest that the fair value of Baidu's shares is estimated at $161.81, which is above the current price, indicating a potential undervaluation. Investors looking for additional insights can find more tips on InvestingPro, and with the use of coupon code PRONEWS24, they can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription. For those seeking in-depth analysis, there are 5 more InvestingPro Tips available that could further inform investment decisions regarding Baidu.
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