Morningstar | Reducing Baidu’s Fair Value Estimate by 14%; Worst Is Almost All Priced In
Baidu is the largest Internet search engine in China. It has been evolving from a mobile-first to an artificial-intelligence-first company. We believe Baidu is still the technology leader in China, but it has been facing competition from other Internet companies, particularly Alibaba and Tencent. In the near term, margins will remain under pressure due to aggressive content spending and talent acquisition costs for AI personnel. Although Baidu’s search revenue and reputation were severely damaged in the Wei Zexi incident in early 2016, we believe that the worst has passed. Following the incident, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising; the new regulations came into effect on Sept. 1, 2016. As a result of stricter standards for online advertisers, Baidu’s active online marketing customers decreased by 6% and its search revenue declined by 0.5% in 2016. In 2017, Baidu’s online marketing service revenue growth recovered to 13% due to a low base in 2016. IQiyi, Baidu’s online video platform, has been a key growth driver in the past three years. Revenue increased 55% in 2017 to CNY 17 billion, although this still represented a CNY 4 billion operating loss. Baidu filed for an IPO for iQiyi and is planning to raise $1.5 billion, which could value it at $10 billion. In February 2017, iQiyi issued $1.5 billion in convertible bonds. We think a potential Baidu breakthrough in AI-based apps or services, including autonomous driving, is the key upside risk for this company. As a technology company, Baidu has been actively investing in AI for many years.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.