Loop Capital adjusted its outlook on Baidu (NASDAQ:BIDU), reducing the price target from $120.00 to $115.00, while still recommending the stock as a Buy. The firm's decision comes in response to an anticipated faster shift to genAI search, which is expected to impact the company's revenue from online marketing services.
The firm predicts that Baidu's online marketing services will see a continued decline in the second half of the year, with a forecasted 5% drop in the third quarter following a 2% decrease in the second quarter. Despite this, a rebound to positive year-over-year growth is expected by the first quarter of 2025, with a projection of 4% growth for the next year after a 2% decline in 2024.
Baidu's cloud business, on the other hand, is projected to maintain its double-digit growth trajectory. Loop Capital anticipates a 16% increase in the third quarter, marking the fourth consecutive quarter of acceleration for this segment of the company.
The valuation of Baidu's advertising business has been reduced to three times the firm's 2025 earnings projection, which influenced the decrease in the price target. Nevertheless, Baidu's balance sheet is noted to represent 70% of the enterprise value in Loop Capital's assessment framework, not including $18 per share in long-term investments. The firm maintains its Buy rating based on valuation considerations.
Baidu, Inc. revealed an 8% year-over-year growth in non-GAAP operating profit and a total revenue from Baidu Core of RMB 26.7 billion in its Q2 2024 earnings report. Jefferies maintained a buy rating while revising the price target to $139, citing Baidu's potential for monetization through its Cost Per Sale model and AI agents.
Meanwhile, Bernstein SocGen Group downgraded the company's shares to Market Perform and reduced the price target to $97, citing concerns over disruptions in the search segment. BofA Securities also maintained a Buy rating but reduced the price target to $117 due to the non-monetization of AI-generated search results and broader market conditions.
InvestingPro Insights
According to the latest data from InvestingPro, Baidu (NASDAQ:BIDU) currently boasts a market capitalization of $30.05 billion, reflecting the scale of the tech giant's operations. The company's Price-to-Earnings (P/E) ratio stands at a reasonable 11.1, which may appeal to value-oriented investors, especially considering the adjusted P/E ratio for the last twelve months as of Q2 2024 is projected to be even lower at 10.7. This indicates that Baidu's earnings relative to its share price are potentially becoming more attractive over time.
Furthermore, Baidu's Price-to-Book (P/B) ratio of 0.85 suggests that the stock might be undervalued, as a P/B ratio under 1 can imply that the stock is trading for less than the value of its assets after liabilities are subtracted. This aligns with Loop Capital's assessment that a significant portion of Baidu's enterprise value is backed by its balance sheet.
The company's revenue growth shows a modest increase of 3.08% for the last twelve months as of Q2 2024, which could signal stability in Baidu's business operations despite the concerns over its online marketing services. On the InvestingPro platform, there are additional tips available that can provide deeper insights into Baidu's financial health and growth prospects. Currently, there are 12 more InvestingPro Tips that users can access to inform their investment decisions, including analysis on Baidu's cloud business and other segments that may counterbalance the anticipated decline in online marketing services.
Overall, Baidu's financial metrics suggest a company that is navigating industry shifts with a solid balance sheet and a valuation that may attract investors looking for potential bargains in the tech sector.
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