JPMorgan Downgrades Baidu, Notes 'Binary Outlook'
In a report published Tuesday, JPMorgan analysts downgraded the rating on Baidu Inc (NASDAQ: BIDU) from Overweight to Neutral, while reducing the price target from $240 to $215.
Baidu announced weaker-than-expected 1Q revenue as well as 2Q revenue guidance. This indicates deceleration in total revenue growth, which had been driven by improvement in mobile monetization.
Mobile monetization improvement seems to have reached a "near-term bottleneck," the analysts said. The mobile ads monetization capability is estimated to have reached 80-90 percent of PC in 1Q15. This suggests that mobile monetization will grow at a rate similar to that of PC in the near future. Revenue growth is unlikely to "surprise on the upside" until O2O initiatives bear fruit or mobile unique products take off.
In the report JPMorgan noted, "We view O2O as a big long-term opportunity with meaningful synergy to the core ads services. However, Baidu is facing intense competition, which leads to uncertainty around the length of the investment cycle. Baidu's success in the three O2O verticals also hinges partly on how Alibaba (NYSE: BABA) [rated Overweight, PT at $109] and Tencent [rated Overweight, PT at HKD 185] react to the strategy, given their shareholding in Meituan and Dianping, which compete directly with Baidu in these three verticals."
The non-GAAP EPS estimates for 2015 and 2016 have been revised from RMB49.74 to RMB46.00 and from RMB69.70 to RMB60.82, respectively.
Latest Ratings for BIDU
|Jan 2017||Bernstein||Initiates Coverage On||Underperform|
|Jan 2017||Stifel Nicolaus||Upgrades||Hold||Buy|
|Jan 2017||JP Morgan||Upgrades||Underweight||Neutral|
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