BIDU: Better Revenue in 4Q14; 2015 is an Investment Year in LBS & Mobile, Which May Push Up TAC; Maintain Hold Rating
BIDU will report 4Q14 results on Wednesday, February 11th after the close of the market with an 8pm EST conference call. We believe that BIDU may report 4Q14 revenue better than consensus, driven by continued strong advertising growth from mobile. However, we don’t expect any upsides in its margins in 4Q14 due to the investment in its LBS business, which started in 3Q14. Even though BIDU made a significant turnaround in its mobile business in the last year and a half, it did not seem to be enough in the mobile era. In the mobile world, BIDU needs to find a way to register users, which we believe is the driver behind the company’s focus to invest in location-based services (LBS) in 2015. As such, 2015 can be an investment year for BIDU. In addition, we believe that as BIDU’s mobile search becomes more meaningful, the associated traffic acquisition cost (TAC) is likely to go higher than that in 2014. TAC may also go up a bit for the rapid development in contextual ads. Putting all together, we believe the upside to current consensus margin in 2015 may be limited even though growth can continue at a high level. As such, we maintain our Hold rating.