Baidu's First Loss Since Its IPO Leads to Downgrades and Falling Shares

(Bloomberg) -- Shares of Baidu Inc. are at a near four-year low as the Chinese search engine’s first reported loss since going public led to analyst downgrades and slashed price targets.

Four analysts -- including those from Deutsche Bank, Bocom International and China Renaissance -- have already downgraded Baidu from buys to holds. Weaker-than-expected guidance for the second quarter and the departure of a key executive are also fueling the rout in shares. Baidu is “losing more market share than thought,” Deutsche Bank analyst Han Joon Kim cautioned in a downgrade note.

Bulls like Benchmark’s Fawne Jiang defended the company, however. The analyst still rates Baidu a buy, as management’s plan to improve operational efficiencies “should help alleviate margin pressures in the coming quarters.” Still, the analyst cut Baidu’s 12-month price target to $180 from $245 as slowing growth and margin pressures were likely to hit earnings.

Benchmark, Fawne Jiang

For the near term, Baidu “remains focused on strengthening its mobile position and expanding its content/service ecosystem to revitalize the core marketing business while continuing to invest in AI initiatives for longer term growth.”

Analyst remains “constructive” on Baidu over the long-term; notes focus on artificial intelligence strategy, “which should help the company reinforce its core search + feed business with improved monetization.”

Baidu remains a buy, price target cut to $180 from $245.

Deutsche Bank, Han Joon Kim

“We had been recommending Baidu as a relatively defensive name (with lower beta) within an overarching bearish outlook for the sector, but the oversupplied digital media space is exacting a much more severe toll on Baidu than we had thought.”

With "virtually no top-line growth" expected for Baidu Core for several quarters, and a sharp drop in profits to coincide with continued investments, Baidu’s earnings are likely to be "paddling through low waters for some time to come”; But the analyst remains positive on the retailer’s long-term prospects.

“Baidu’s new media products (e.g. Haokan) do not yet have the social impact needed to win ad wallet share, nor the ad solutions to capture intermediary agency/distribution dollars.” Ad trends and Baidu’s attempts to curate healthcare advertisers may lead to a 1% decline y/y for Baidu’s core pro-forma growth in 2019.

Cut to hold from buy, price target set at $147.

Citi, Alicia Yap

With the resignation of Hailong Xiang, a 14-year veteran in charge of Baidu’s core search business, and the initiation of a $1 billion share buyback coupled with weaker-than-expected second quarter forecast, “it seems like Baidu is facing multiple headwinds in addition to macro weakness.”

“The miss is attributable to challenging ad sentiment, depressed CPM due to influx of ad inventory supply as well as an on-going transition of healthcare vertical from search to a data structured platform.”

Investors want to know “what is the next step and how long will this difficult time last?”

Baidu maintained at buy, price target cut to $178; opening a 90-day negative catalyst watch.

Oppenheimer, Jason Helfstein

Baidu’s first quarter results were “mixed” while marketing in the quarter drove the second quarter sales guidance below Street estimates.

Baidu maintained at market perform.

CCB, Ronnie Ho

Baidu’s “challenging business outlook” led analyst to slash his target. Ad revenue has been weak since the fourth quarter and will likely extend into the rest of the fiscal year.

While newer Haokan and Baidu Cloud businesses are progressing and “may eventually become growth engines, their current financial contribution to the company remains negligible.”

Downgraded Baidu to neutral from outperform, price target to $155 from $187.

Bocom, Connie Xinyu Gu

Cut Baidu to neutral from buy, price target to $165 from $232.

China Renaissance, Ella Ji

Baidu downgraded to hold from buy, price target to $135 from $177.

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