Morgan Stanley On Baidu Inc. 3Q Results

Morgan Stanley issued a report Thursday on the 3Q 2014 results of Baidu Inc. (ADR) BIDU. The firm maintained an Overweight rating on the stock with a price target of $275.20.

Analysts led by Philip Wan noted that “total sales grew 52 percent YoY to Rmb 13.52 billion. Operating profit grew 17 percent YoY to Rmb  3.88 billion. Diluted EPS rose 27 percent YoY to Rm b11.00 (US$1.79)... ~12% better than our estimates.”

Wan commented that the 4Q outlook was in line with estimates as the company guided “sales to grow 45.4-49.6 percent YoY to Rmb13.85-14.25bn (US$2.256-2.322bn), vs. our original forecast / consensus of +49 percent. The annual growth rate appears slower mainly due to higher base, as Baidu started consolidating 91wireless in October 2013 and that contributed ~3 percent of its total revenue in 4Q13.”

3Q operating margin declined to 29 percent and “was mainly driven by: 1) higher traffic acquisition cost (+120bps YoY as a percentage of sales) due to increased contextual ads contribution, mobile, and hao123 promotions; 2) Higher content cost (+120bps YoY), mainly due to its online video business, iQiyi; 3) Higher SG&A expenses (+440bps YoY), due to the heavier promotions for its mobile products; 4) Higher R&D cost (+130bps YoY), mainly due to higher staff cost.

Baidu Inc. traded at $223.20 in the premarket, down 0.60 percent.