Street's Q1 Sales Estimates For Baidu Currently 'Aggressive'

• The share price of Baidu Inc (ADR) (NASDAQ: BIDU) has declined 14.59 percent over the last one month, touching a low of $159.831 on January 15.
• Henry Guo of Summit Research has reiterated a Hold rating on the company, while lowering the price target from $189 to $169.
• Guo attributes the Hold rating to the challenging macro environment, intensifying competition in the O2O space and limited visibility into the company’s margin improvement.

Analyst Henry Guo mentioned, “Tecent industry checks suggest Baidu is losing some large advertisers’ ad spending to competing advertising platforms.”

Large advertisers contribute 30–35 percent of the company’s total ad revenue. However, 2015 has been a disappointing year for the KA business, and Guo expects the company to have missed its 2015 sales target of RMB 20 billion in sales from the KA business.

Related Link: Why Some Chinese Citizens Are Boycotting Baidu And Praying For Google To Return

Additionally, Guo expects 2016 to be a challenging year for the company’s KA business due to the challenging economy and increasing industry consolidation, which has led to the KA customer base shrinking meaningfully.

The company is also likely to face a negative financial impact as it ceases its commercial activities on some of its online properties amid scandals of Baidu selling its online forums to unqualified medical agencies, which have posted misleading medical information on some of the company’s forums.

“While online video iQiyi strength likely helps Baidu meet the lower end of its guidance and consensus for 4Q15, we expect the company to guide 1Q16 revenue below Street expectations,” Guo stated.

Given that the current consensus revenue forecast for 1Q16 is for 31 percent year on year growth, Guo believes that the Street expectations for could prove too aggressive.

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