BIDU: The Quarter Can Be Overwhelmed by O2O Initiatives; Maintain BUY Rating but Lowering PT
We believe BIDU almost has no alternatives but to invest in food delivery as well as group-buy business in order to overcome constrains of its past success in PC search, which is that BIDU does not require users to register. In the mobile era, its peers Tencent (700-HK, HK$149.10 – Intraday, Not Rated) captures millions of mobile users with its communications tools, mobile QQ and WeChat, and Alibaba (BABA, $79.71, Buy) with its Alipay while BIDU had nothing to accomplish such task. In the PC era, the internet entry point can be search but in the mobile era, it has become the individual mobile user. We believe that with BIDU’s rich cash position, map, data and its determination, there is a chance that food delivery and group-buy can enable the company to accomplish such goal. Therefore, while we believe 3Q15 earnings can be overwhelmed by these newer initiatives, the level of uncertainties has already been mitigated, in our opinion. As such, we maintain our Buy rating but lower our price target to $187 from $239. BIDU will report 3Q15 results on Thursday, October 29th after the close of the market followed by an 8pm EST conference call.