Baidu Is Dealing Its Way To Growth In China

Despite market concerns over the stability of China’s economy, Baidu is continuing full steam ahead on its push to dominate the Chinese Internet world. After a stellar Q3 earnings beat by Baidu, Jefferies analyst Cynthia Meng upped her price target for the stock and explained why the company’s recent partnerships and acquisitions will continue to drive performance.

Profit Beat

While Q3 revenue came in mostly in-line with expectations, profit for the quarter exceeded consensus estimates by more than 10 percent. In terms of growth, the company also reported 643 active mobile search users in September, a 26 percent year-over-year growth rate.

Related Link: Why Baidu's Margins Are Still A Concern

Other Growth Drivers

In addition to mobile search growth, Meng identified hot content and subscription revenue as two sources of stronger-than-expected growth in Q3. “Along with the launching of popular content such as Grave Robbers’ Chronicles and Running Man, iQiyi’s 3Q15 quarterly time spent together from web and mobile-end has ramped up by 28.9 percent QoQ and 95.6 percent YoY, according to iResearch,” she added.

Ctrip Partnership Pays Off

In coming quarters, Baidu will focus on integrating its search, maps, Nuomi and Baidu Wallet services with Ctrip’s travel platforms. This partnership could prove to be one of the more fruitful endeavors of Baidu’s recent O2O initiative.

Outlook

For now, Jefferies is bullish on Baidu’s stock, which remains down 17.4 percent year-to-date. Jefferies’ sum-of-the-parts analysis of Baidu yields a valuation of $69 billion based on 14.6x projected 2015 earnings. Following Q3 earnings, Jefferies raised its price target for Baidu from $210 to $219.

Disclosure: The author holds no position in the stocks mentioned.