Baidu (BIDU) Poised to Grow Post iQIYI Divesture: Here's Why

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Recently, Baidu's, Inc.BIDU price target was increased by more than 27% from $240 to $305 by Bernstein's analyst Bhavtosh Vajpayee. The analyst also revised the stock's rating from "Underperform" to "Market Perform."

The upgrade comes on the heels of iQIYI's public listing. Further, the company's recent plans to vend its financial services business along with the previous divestitures of its food delivery and gaming businesses in 2017 has enabled Baidu to focus on its core businesses, like search engine platform, newsfeed and cloud.

The analyst predicts Baidu to generate 20% revenues from its core businesses.

Baidu's Growth Prospects

Bernstein analyst remains optimistic about the increasing growth opportunities in Baidu's search engine platform, newsfeed and cloud businesses.

Baidu's Chinese language-based internet search engine will continue to drive its top-line growth in the upcoming quarters. The company expects 19% growth in revenues from this business in the second quarter.

Further, Bernstein analyst predicts search business to reflect growth in a range of mid-teens by 2019. Also, the analyst expects revenues from newsfeed business to get doubled by 2019.

We believe, Baidu's continuous efforts on improving its search and feed business will meet analysts' expectations. Baidu's Bear Paw Account, which was introduced late last year, helps the brands to link their content from various websites and social platforms and display them. Also, the account allows communication between brands and Baidu app users. Hence, Bear Paw Account contributes for almost 30% to the search results.

Also, the company has demolished 20.2 billion malicious webpages to improve its search results. Further, Baidu's strong focus toward improving user experience of its twin engine Baidu app will continue to benefit its search and feed business. Additionally, app users can view Baidu Encyclopedia content in feed and this has made the information quality better.

Baidu app's daily active user came in 137 million in March which increased 18% year over year. Additionally, the company's AI computing and big data assets will continue to improve its feed algorithms. Also AI helps in removing vulgar content.

The company is likely continue to gain traction with Dual Cloud DNN callback model which is designed to aid advertising performance. In the first quarter, Baidu experienced increased number of clicks with the help of this model.

Baidu, Inc. Revenue (TTM)

Baidu, Inc. Revenue (TTM) | Baidu, Inc. Quote

Q1 Highlights

In first-quarter 2018, Baidu's adjusted earnings of $2.6 per share surged 160% from the year-ago quarter.

Also, the company generated $3.3 billion revenues which improved 31% on a year-over-year basis. The top-line growth was primarily driven by its strength in search and feed businesses. During the quarter, search platform reflected a year over year growth of 17%.

We believe the iQIYI spin off will propel further business growth, since in first quarter content costs were $669 million, up 59% year over year, which was mainly due to iQIYI's higher content purchases.

We note the share price of the company has surged almost 13% to date after its first-quarter 2018 earnings release on Apr 26. Additionally, shares of Baidu have returned 45% over a year, outperforming the industry 's rally of 2%.

Also, the company has witnessed an upward estimate revision in past 30 days. The earnings estimate has gone up 11.4% to $2.64 per share for the second quarter and 14.6% for 2018.

Zacks Rank & Other Stocks to Consider

Currently, Baidu sports a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the broader technology sector are Akamai Technologies AKAM , Match Group MTCH and Twitter TWTR . All the three stock flaunt a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Long-term expected earnings growth rate for Akamai, Match Group and Twitter is currently pegged at 14.4%, 12.5% and 23.1%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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