On Wednesday, HSBC (LON:HSBA) made adjustments to its expectations for Baidu (NASDAQ:BIDU), the Chinese internet giant listed on NASDAQ:BIDU. The firm's analyst has lowered the price target for Baidu's stock to $145 from the previous $157 while maintaining a Buy rating on the shares.
The revision comes ahead of Baidu's first-quarter earnings report, which is scheduled for May 16, 2024. The firm cites weaker macroeconomic conditions and a conservative forecast for Baidu's advertising business as reasons for the adjustment.
Initial projections for Baidu's core advertising revenue growth in the first quarter of 2024 have been scaled back to 2%, a decrease from the previously anticipated 5%. This is attributed to sluggish performance in key sectors such as business services, franchising, real estate, and automotive. According to the analyst, there has been no sequential improvement in growth momentum for Baidu's ad business as of April.
Beyond advertising, expectations for Baidu's other core services, excluding cloud computing, have also been tempered due to a decline in smart devices revenue and slower progress in automotive solutions, given a tougher market outlook. On a more positive note, the cloud segment is forecasted to grow by 11% in the first quarter, driven by enterprise cloud services and generative AI demand.
Despite the lower revenue projections, cloud growth remains a bright spot for Baidu. However, the reduced advertising-income is expected to impact Baidu's overall profitability. The firm predicts that Baidu's adjusted core non-GAAP operating profit margin (OPM) will decrease year-over-year to 21% in the first quarter of 2024.
As a result of these factors, the analyst has also revised down the earnings estimates for Baidu for the years 2024 to 2026 by 6-8%. This comprehensive reassessment of Baidu's financial outlook reflects the challenges the company faces in its core advertising sector and other service areas, while still acknowledging its growth potential in cloud computing.
InvestingPro Insights
As Baidu prepares to release its first-quarter earnings report, a glance at the company's financial health and market position through real-time data from InvestingPro can provide investors with additional context. With a market capitalization of $34.44 billion and a P/E ratio that has adjusted to 12.41 from the last twelve months as of Q4 2023, Baidu appears to maintain a valuation that could interest value-focused investors. The company's revenue growth of 8.83% for the same period indicates a steady upward trajectory, despite the conservative forecast for its advertising business.
The InvestingPro Tips highlight Baidu's PEG ratio of 0.07 and a price to book ratio of 1.02, suggesting that the stock could be undervalued relative to its earnings growth and book value, making it potentially attractive for investors seeking growth at a reasonable price. Additionally, the company's strong gross profit margin of 51.69% underscores its ability to retain a significant portion of its revenue as gross profit.
For investors interested in exploring further, InvestingPro offers additional tips that could provide deeper insights into Baidu's financial performance and market potential. Using the coupon code PRONEWS24, investors can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a comprehensive array of analytics and data that could inform investment decisions. Currently, there are 12 more InvestingPro Tips available that delve into Baidu's financials and projections.
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