On Thursday, CFRA maintained its Hold rating on Baidu Inc. (NASDAQ:BIDU) with a price target of $120.00. The firm updated its earnings per share (EPS) estimates for Baidu, raising the forecast for 2024 to CNY83.11 from the previous CNY77.61, and for 2025 to CNY88.00 from CNY83.85. The adjusted EPS targets are based on a price-to-earnings (P/E) ratio of 9.7x, aligning with the valuation of similar companies based in China.
Baidu recently reported its fourth-quarter earnings per American Depositary Share (ADS) at CNY19.91, surpassing both the CNY16.10 figure from the same quarter last year and the CNY15.81 consensus. The company's sales saw a modest 1% increase, slightly above market expectations. This growth was attributed to a 3% rise in online marketing revenue and a 6% increase in non-online marketing. However, these gains were partially offset by a 5% drop in sales from iQIYI, Baidu's online entertainment platform.
CFRA acknowledged Baidu's progress with its artificial intelligence (AI) model, ERNIE, which has led to improvements in the company's advertising platform through enhanced targeting and bidding capabilities, as well as its cloud services. Despite the high potential for AI in cloud computing, mobility, and advertising sectors, the firm pointed out that the monetization benefits are still limited, with developers yet to create significant applications for ERNIE.
The analyst also highlighted several challenges for Baidu, including intense competition, slow advertising growth, and the need for increased investment in AI technology. However, CFRA expressed optimism regarding Baidu's cost-cutting measures, which have resulted in a year-over-year decrease in operating expenses. Additionally, the firm noted Baidu's autonomous driving initiatives, which have seen a 25% boost, and a respectable 3% growth in mobile monthly active users (MAU).
InvestingPro Insights
In light of CFRA's analysis, it's worth considering additional financial metrics from InvestingPro that can provide a broader perspective on Baidu Inc.'s (NASDAQ:BIDU) valuation and performance. Baidu's current market capitalization stands at $38.83 billion, reflecting its substantial presence in the market. The company's price-to-earnings (P/E) ratio, an indicator of how much investors are willing to pay for each dollar of earnings, is 14.36, slightly higher than the P/E ratio of 9.7x used by CFRA in its EPS estimates. This suggests that the market may be valuing Baidu's future growth prospects more optimistically.
InvestingPro data also shows a PEG ratio of 0.08 for the last twelve months as of Q4 2023, which could indicate that the stock is undervalued relative to its earnings growth. Additionally, the company's revenue growth of 8.83% over the last twelve months, coupled with a gross profit margin of 51.69%, underscores Baidu's ability to translate sales into profit efficiently.
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