Baidu Analysts Shrug Off Soft Growth Guidance, iQIYI SEC Probe As Short-Term Headwinds

Chinese search engine Baidu Inc ADR Class A BIDU reported better-than-expected second-quarter results Thursday, but its shares slid, apparently in reaction to soft guidance and an SEC investigation into its video streaming subsidiary IQIYI Inc IQ.

The Baidu Analysts: Benchmark analyst Fawne Jiang reiterated a Buy rating on Baidu with a $165 price target.

Mizuho Securities analyst James Lee maintained a Buy rating and $170 price target. Baidu is Mizuho's top Chinese internet pick. 

Benchmark On Baidu's Transition To Super App: Baidu's second-quarter revenue upside came from Baidu Core, and a meaningful EPS and margin beat was achieved on the back of significant gross margin improvement and prudent cost control efforts, Jiang said in a Friday note. 

The below-consensus third-quarter revenue guidance reflects a temporary setback for Baidu Core due to a resurgence of COVID-19 in Beijing, ongoing macro uncertainties and a soft outlook for iQIYI, the analyst said.

"We are incrementally positive on Baidu Mobile App, as it maintained solid user momentum and in-app revenue growth thanks to a continued effort to improve user experience through expansion of content and service offerings." 

Baidu's transition from search to a Super App will likely pave the way for a sustainable turnaround of its core growth, driven by growing user traffic and monetization potential, Jiang said. 

Baidu may continue to ramp new AI monetization, which could emerge as a meaningful growth driver going forward, according to Benchmark. 

Baidu's Headwinds Are Short-Term, Mizuho Says: The third-quarter core revenue guidance for a 2% year-over-year decline, in-line with the consensus estimate, is due to slower recovery in offline industries as a result of a second wave of COVID, Lee said in a Friday note. 

The SEC investigation into iQIYI is an overhang, but Baidu said it is confident about the streaming subsidiary's business practices and governance and anticipates a positive outcome, the analyst said. 

Mizuho said it views the headwinds as short-term and maintained its fiscal year 2022 core EBITDA estimate at 37.5 billion yuan ($5.4 billion). 

BIDU Price Target: Baidu shares were trading down 6.97% at $115.89 at last check Friday. 

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