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Baidu Is Not The Same As Google; Bernstein Maintains Underperform Rating

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Baidu Is Not The Same As Google; Bernstein Maintains Underperform Rating
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Bernstein analyst Bhavtosh Vajpayee continues to be one the biggest Baidu Inc (ADR) (NASDAQ: BIDU) bears, reiterating an Underperform rating and $152 price target, a 21 percent downside from Friday’s $188 open.

The analyst reflected on recent conversations which saught to compare Baidu to Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)’s Google, but came away seeing stark differences.

“We see tactical wins where Baidu could unlock value in the near term, but also structural challenges that are harder to fix,” said Vajpayee in a note.

Baidu’s Growing Ad Competition

One difference of note right away is actually very simple in essence, the competition for ad-revenue.

Whereas Google’s only real competitor for ad-dollars is Facebook Inc (NASDAQ: FB), Baidu faces a three-way battle against Alibaba Group Holdings Ltd (NASDAQ: BABA) and Tencent Holdings Ltd (OTC: TCEHY).

Both companies, an e-commerce giant and popular mobile game developer in China, only began ramping up their advertising businesses relatively recently. Vajpayee said there may have been a “false sense of security” at Baidu in past years.

Historically, Baidu’s cost-per-click has not seen any of the downward pressure Google has experience. Google’s CPC first saw declines in 2011, but Baidu’s growth remained positive until 2015.

The analyst questions whether Baidu had been overplaying its hand on pricing, which is coming back now to bite them in the face of greater competition.

A Splintered Online Ecosystem

A benefit Google has that Baidu lacks is its many products with over 1 billion users each. Baidu exists in an online ecosystem heavily broken up not only by company but by individual apps.

Google leverages its network by sharing data between all of its services and has a firm hold on trends across other companies and apps it is used in as well. Baidu’s data scrapers are walled off from much of the Chinese social and e-commerce systems.

Costly Experiments

Alphabet is well known for its X moonshot development division, which has successfully developed out companies like Waymo, the leader in autonomous vehicles and Google Brain, a deep learning artificial intelligence project that has more than paid for itself.

X only sucks about 15 percent of Alphabet’s operating profits. Baidu’s moonshot factory, O2O, meanwhile, has slashed the company’s profits in half.

Vajpayee noted that “at least 23 data points” that have been reported by Baidu in the past are no longer disclosed, suggesting greater distraction from overall corporate strategy (check out Vajpayee's track record here).

Baidu is still one of the world’s biggest internet companies, and ranked fourth overall in the Alexa internet rankings, but it’s no Google yet.

Related Links:

Baidu Is Partnering With Nvidia To 'Accelerate' Artificial Intelligence

Alibaba Launches Platform To Link US Businesses With 500 Million Chinese Consumers
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Image Credit: By hwanghsuhui (photo of hwanghsuhui) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 4.0-3.0-2.5-2.0-1.0 (http://creativecommons.org/licenses/by-sa/4.0-3.0-2.5-2.0-1.0)], via Wikimedia Commons

Latest Ratings for BIDU

DateFirmActionFromTo
Oct 2017OppenheimerMaintainsOutperform
Oct 2017BarclaysMaintainsEqual-Weight
Oct 2017JP MorganMaintainsNeutral

View More Analyst Ratings for BIDU
View the Latest Analyst Ratings

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