In a recent article titled “China’s Long Bull Run,” Barron’s analyst Kopin Tan came up with eight stock ideas and one ETF idea for long term investors who are looking to invest in China. Baidu (BIDU, Financial) is one of his top Chinese picks, and he believes the stock offers good value post recent correction. In his article, he wrote,
“Baidu is China's Google (GOOGL, Financial) and one of its best brands, but the Nasdaq-listed shares (BIDU, Financial) are off about 20% since their November high. China's dominant search engine just reported first-quarter revenue growth of 34%, and profits shrank slightly as Baidu spent to promote mobile services to new users in smaller cities. But worries about Baidu losing its stranglehold as search shifts from PCs to mobile devices are overblown, and shares trade at 25 times projected profits, well off its median of 45 times over the past decade.”
Baidu's stock was also recently upgraded to buy by T.H. Capital analyst Tian X. Hou. According to him, location-based services can become a new growth driver for the company in the future. In a note sent to investors, he wrote,
"Mobile has its unique features compared to the PC, and it is more personal. As such, mobile is equipped for personalized and regionalized marketing or commerce. We believe Baidu's distance proximity bidding (DPB) offering can be one of such products that utilizes these unique features and suits millions of small regional businesses' marketing need of advertising in a defined area locally."
Baidu is a Chinese-language internet search provider. The company offers a Chinese-language search platform on its website, Baidu.com, to enable users to find relevant information online, including Web pages, news, images, documents and multimedia files, through links provided on its Websites.
In addition to secular tailwind from the fast-growing internet user base, the company is also benefiting from its transformation from a PC-centric company to a mobile-first company. The company is now a market leader in mobile search, mobile maps and app distribution in China. In addition, Baidu has a broad portfolio of apps in video, travel and other verticals. The company's focus on mobile helped it re-accelerate its top line, and its full-year revenue grew 54% year over year in 2014 and 34% in 1QFY2015.
The company's mobile search traffic now exceeds PC search, and it continues to increase as a portion of overall search traffic. The company continues to invest in making its search faster, more relevant, more visual, more personalized and more real time. In November, Baidu launched personalized results, returning tailored, more relevant search results. The company made instant search faster and more relevant than before, further improving the Baidu user experience and helping increase page views and click-through rates. Overall, Baidu's key monetization metrics, like the number of paid clicks, click-through rates, cost per click continues to trend in right direction.
Going forward, the company is beginning the next phase of growth in 2015 where it plans to enable users to discover, connect and transact, all through Baidu. Whether it is buying movie tickets or tickets to local attractions, hailing taxis and private cars, booking hotels, purchasing group-buying offers or ordering for delivery – all can be done through Baidu's platform.
In the past year, the number or transactions completed on the Baidu platform has grown over fourfold. In each of its categories, Baidu created value for users by delivering a better experience through closed-loop transactions. In 2014, Baidu also solidified the gateway dominance of mobile Baidu and mobile maps, adding new product features, such as Discover and Nearby, to offer better local services to its users. The company also rolled out new key offerings, such as Baidu Connect, Baidu Wallet and Baidu Foot Delivery in 2014. The company plans to focus on driving adoption of its closed-loop offerings in 2015.
Baidu is a fast-growing company. According to sell side estimates, its sales are expected to rise 39% in the current year which is almost comparable to that of Facebook's (FB) 37%. However Facebook is trading at a significantly higher Price to Sales multiple as compared to Baidu. While Facebook's P/S multiple is 17.82, Baidu is trading at a P/S multiple of 9.12. This low relative valuation, as compared to other fast-growing internet peers, makes Baidu a favorite among sell-side analysts. Out of 28 analyst covering the company, 26 are positive and have buy rating and two have hold ratings. I believe the company is a good buy given its strong growth prospects and market share gains.
