Baidu Set To Gain From Digital Transformation & ADAS Leadership, Analysts Say

Mizuho analyst James Lee maintained Baidu Inc (NASDAQ:BIDU) with a Buy and lowered the price target from $200 to $180. Baidu Core…
  • Mizuho analyst James Lee maintained Baidu Inc (NASDAQ:BIDU) with a Buy and lowered the price target from $200 to $180.
  • Baidu Core operating income was on-par with expectations despite facing macro impact and COVID challenges. 
  • Management is laser-focused on improving efficiency while cutting variable expenses. 
  • Concurrently, he believes the cost structure relating to G&A and R&D still has to improve as he heads into re-opening in FY23. 
  • Although facing a short-term setback, he believes Baidu is well-positioned long-term due to digital transformation and leadership in ADAS.
  • As a result, he left his FY24 EBITDA of RMB 35 billion unchanged but reduced the price target on compressed industry multiples.
  • He found the stock attractive with re-opening in FY23 and call options in the cloud and ADAS. 
  • Benchmark analyst Fawne Jiang reiterated a Buy and reduced the price target to $200.
  • Despite a challenging macro backdrop, BIDU delivered solid Q3 results with a substantial beat on margin and the bottom line driven by adequate cost savings. 
  • The ad growth could remain pressured in the close quarters, given the company’s significant exposure to offline businesses and SMEs. 
  • However, he highlighted the resilience of search (ROI driven) and the fundamental improvement of BIDU’s ad products, including its growing video-based ad inventories in feed and search and its more profound penetration into e-commerce and retail verticals. This should limit downside risks for BIDU in a soft macro environment. 
  • Decelerated growth in the AI cloud was a disappointment for the quarter, but he anticipates BIDU should continue to outpace the underlying industry. 
  • He found the risk-reward is substantially biased towards the upside, with the optionality of AD and AI cloud.
  • Price Action: BIDU shares traded higher by 0.39% at $95.45 on the last check Wednesday.
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