Baidu Impresses Analyst With Market Gain Potential; Also Picks JD.Com For Resilience Against Livestream Competition

  • Mizuho analyst James Lee expects 4Q22 to be soft for China's Internet, given the COVID impacts on business activity and consumer sentiment. 
  • The analyst anticipates the headwind reflected across all internet segments, including e-commerce, advertising, and cloud computing. 
  • The early checks from late December through the Chinese New Year holidays have been increasingly positive, evidenced by solid consumer discretionary spending. 
  • With the upcoming National Congress in March, Lee continued to expect a focus on consumption support of strategic industries as China achieves herd immunity. 
  • Lee maintained JD.Com, Inc JD and Baidu, Inc BIDU as top picks as he anticipated both companies to be market-share gainers from regulatory policies and a competitive environment.
  • Lee maintained a Buy on JD and raised the price target from $82 to $85.
  • Heading into FY23, Lee expects total revenue growth to resume double digits starting 2Q23, incrementally confident about additional margin expansion. 
  • JD remains his top pick in China on its potential to gain share and resilience against livestream competition.
  • The analyst reiterated a Buy on Baidu and a $180 price target.
  • Heading into FY23, the analyst expects the advertising business to resume positive growth starting 2Q23 and cloud business growth to accelerate meaningfully in the second half. 
  • Despite near-term uncertainty, the analyst liked BIDU long-term on its potential to gain cloud market share from public sectors and the potential upside from autonomous driving.
  • Price Action: BIDU shares traded higher by 11% at $158.48 on the last check Tuesday.
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