Summit Research Initiates Baidu With Buy, $256 Price Target

In a report published Monday, WR Hambrecht analyst Henry Guo initiated coverage of Baidu Inc BIDU with a Buy rating and a price target of $256.

Baidu is the leading Chinese language search provider. Guo believes that the company is well positioned to take "a more dominant position" of the Chinese internet space (computers and mobile) going forward. Baidu already has "solid control of mobile traffic gateways, including mobile search, mobile map, and mobile apps distribution," the analyst explained.

In the report W.R. Hambrecht noted its positive investment thesis as:

• Although online advertising market penetration is currently low, advertisers are increasingly moving ad budgets from offline to online. This is especially true for the mobile space, with mobile penetration continuing to grow.
• High ROI keyword search continues to attract advertisers, which is "a tailwind for Baidu." More and more SMES are likely to "embrace this effective marketing channel" to gain visibility.
• China’s desktop search market is dominated by Baidu. The company has gained "solid traction" in mobile search with more than 70 percent market share in mobile web search.
• Baidu has gained a favorable position in the mobile app distribution market, with 91 Wireless. This has expanded the company's revenue stream into mobile game and mobile app revenue-share.
• "O2O and LBS investments in recent years show promising progress, well positioning Baidu for the long-term growth."
• Baidu’s iQiyi online video segment has gained market share, with 130 percent Y/Y revenue growth in 2014. "We believe a potential iQiyi IPO over the next couple of years should help unlock values," Guo wrote.

The revenue growth estimates for 2015 and 2016 are 36 percent and 35 percent, respectively. Non-GAAP EPS estimates for the two years are $7.30 and $10.24, respectively.