Baidu, Inc.: Expect 2Q16 Results To Be In Line With Preannounced Guidance; 3Q16 Consensus Can Be Conservative; Maintain BUY
BIDU will report 2Q16 results on Thursday, July 28 after the close of the market followed by an 8pm EST conference call. We are expecting the company to report 2Q revenue in line with its preannounced guidance of 9% - 10% Y/Y growth. 2Q16 is a bad quarter for BIDU, as 1) the death of a young cancer patient triggered the government to review BIDU’s medical and healthcare sector; and 2) the search business is now classified as advertising, in which two-thirds of BIDU’s revenue will incur another 3% tax as cost, which will impact the gross margin by 2%. After all these negatives, we believe that at least in the midterm, the negatives and uncertainties are in the stock and BIDU will still be a dominant vendor in online search before mobile search replaces PC. Therefore, we maintain our BUY rating. However, we suspend our price target as BIDU is fairly valued today and we will revisit our PT after earnings.