Friday - Mizuho has adjusted its outlook on Baidu (NASDAQ:BIDU), with a reduction in the company's price target to $130 from the previous $140, while still advocating a Buy rating for the stock. The adjustment comes amid a slowdown in advertising revenue, which is contrasted by sustained growth in the cloud sector.
The firm anticipates Baidu's core revenues to witness a modest year-over-year increase of 2%, which is a conservative estimate compared to the consensus forecast of 4%. However, the forecast is bolstered by expectations of a recovery in cloud growth, which is projected at 9% year-over-year. This growth in the cloud segment is seen as a positive sign despite the broader challenges in the advertising sector.
Mizuho's analysis suggests that Baidu's Core Operating Profit Margin (OPM) will be around 21.5%, slightly lower than the consensus expectations of 22.2%. This is attributed to the company's increased investment in Generative AI (Gen-AI), which is highlighted as a significant area of investment and competition within China's tech industry.
Taking into account the slower macroeconomic ramp-up in the first quarter of 2024, Mizuho has revised its forecast for Baidu's core adjusted EBITDA for the fiscal year 2025 downwards by 6%, setting it at 33.7 billion RMB compared to the previous estimate of 35.9 billion RMB.
Despite the reduced expectations, the trends are considered to be constructive for the company's future performance.
InvestingPro Insights
InvestingPro data reinforces the optimistic outlook for Baidu (NASDAQ:BIDU), with a solid P/E ratio of 13.96 indicating the company's earnings are still attractive relative to its share price. This is complemented by a PEG ratio of 0.08, suggesting the potential for undervaluation based on expected growth rates. With a robust revenue growth of 8.83% in the last twelve months as of Q4 2023 and a gross profit margin of 51.69%, Baidu's financial health appears stable.
InvestingPro Tips further illuminate the investment landscape for Baidu. The company's Price / Book ratio of 1.15 signals that the market may be undervaluing the company's assets relative to its stock price. Additionally, the InvestingPro Fair Value estimate stands at 164.72 USD, which is considerably higher than Mizuho's adjusted price target, indicating potential upside. For those looking to delve deeper into Baidu's investment potential, InvestingPro offers additional tips, with the use of the coupon code PRONEWS24 granting an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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