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2021-03-24
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Baidu: The Growth Story Is Intact And Shares Are Attractively Priced
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":351109456,"tweetId":"351109456","gmtCreate":1616571188475,"gmtModify":1634525148066,"author":{"id":3572682061977022,"idStr":"3572682061977022","authorId":3572682061977022,"authorIdStr":"3572682061977022","name":"Weichao","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":3,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p><span>[微笑] </span></p></body></html>","htmlText":"<html><head></head><body><p><span>[微笑] </span></p></body></html>","text":"[微笑]","highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/351109456","repostId":1156454727,"repostType":4,"repost":{"id":"1156454727","kind":"news","pubTimestamp":1616571042,"share":"https://www.laohu8.com/m/news/1156454727?lang=&edition=full","pubTime":"2021-03-24 15:30","market":"hk","language":"en","title":"Baidu: The Growth Story Is Intact And Shares Are Attractively Priced","url":"https://stock-news.laohu8.com/highlight/detail?id=1156454727","media":"seekingalpha","summary":"Summary\n\nBaidu shares have appreciated close to 200% in the last 12 months, but this seems to be jus","content":"<p><b>Summary</b></p>\n<ul>\n <li>Baidu shares have appreciated close to 200% in the last 12 months, but this seems to be just the beginning of a massive bull run.</li>\n <li>The company is expanding its horizons into fast-growing business segments.</li>\n <li>Shares remain significantly undervalued possibly because of the negative sentiment toward Chinese stocks.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/5b17809be1fb9c0f71c5f25b92bb6daf\" tg-width=\"768\" tg-height=\"510\"><span>Photo by fazon1/iStock Editorial via Getty Images</span></p>\n<p>Baidu, Inc. (BIDU), the Chinese internet search giant, debuted on Hong Kong markets earlier today and became the first tech giant to make a flat debut in Hong Kong. Baidu raised $3.1 billion in Hong Kong at a price of HK$252 per share, and shares advanced 1.8% only to shed those gains later in the day to close flat. It would be irrational to expect a secondary offering to make waves in the market because investors generally find these issues less attractive than IPOs, but Hong Kong has been a hot spot for secondary listings, which makes Baidu's performance today a tad disappointing.</p>\n<p>Baidu ADRs are down 5% today to $252.20 at the time of writing this article, which confirms that U.S.-based investors are reacting negatively to the company's debut in Asian markets. As investors, our focus needs to remain on the long-term outlook for a company, and Baidu, in my opinion, is well-positioned to execute its growth strategy over the next 5 years to grow into a diversified tech giant, which makes the company attractively valued in the market.</p>\n<p><b>The new-look Baidu has a long runway for growth</b></p>\n<p>Baidu is no longer an internet search engine operator that derives the bulk of its revenue from display advertisements. The company has invested millions of dollars in the last 5 years with a view of expanding into more profitable business sectors, and this strategy is beginning to pay off. Baidu shares lost momentum after hitting a fresh high in mid-2018, and the company lost approximately 50% of its market value even before Covid-19 wreaked havoc. There were 3 major reasons behind this disappointing performance between 2018 and 2020.</p>\n<ol>\n <li>Negative sentiment toward Chinese stocks as a result of trade tensions between the United States and China.</li>\n <li>Baidu's failure to develop new products and services to monetize its userbase better.</li>\n <li>The economic growth slowdown in China.</li>\n</ol>\n<p>As long-term-oriented investors, I believe we need to altogether ignore trade tensions because these headwinds are likely to be temporary. Baidu, in the last year or so, has addressed the concerns regarding new products, which I will discuss shortly. The concerns over the expected slowdown in China's economic growth slowdown, on the other hand, proved to be overblown last year as China became the only major economy to report positive growth for 2020.</p>\n<p>Because China has a headstart in controlling the pandemic, its economy will most likely outpace the growth of many other developed and emerging countries in the foreseeable future, so Baidu and other Chinese stocks will have a strong platform to deliver alpha returns. The 3 major reasons that led to a disappointing market performance from mid-2018 to early 2020, therefore, no longer seem to be in play, and this is likely to help Baidu shares gain momentum in the future.</p>\n<p>Coming back to the business strategy of the company, there are significant improvements that paint a very promising picture. First, the improving operating margins of iQIYI(NASDAQ:IQ). The video streaming platform owned by Baidu has consistently accounted for over 25% of company revenue in the last 5 years, and the company's failure to keep customer acquisition costs low negatively impacted company earnings. Things, however, turned for the better in 2020. As illustrated below, iQIYI operating margins improved significantly in the last year.</p>\n<p><b>Exhibit 1: iQIYI operating margins</b></p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/fa453b1113e846f7cf301866d920b65c\" tg-width=\"640\" tg-height=\"383\"><span>Source: Business Quant</span></p>\n<p>This improvement in operating margins for iQIYI was one of the main drivers of operating income for Baidu in 2020, and the company seems to be executing its cost reduction strategy efficiently. The OTT content streaming industry in China is expected to benefit from the projected increase in the internet penetration rate, the rollout of 5G technology, the rising middle-income society, and the growth of AI-based content recommendation services. PwC projects the industry to grow at a healthy CAGR of 12.2% through 2024, which will create opportunities for iQIYI to grow steadily and reach profitability.</p>\n<p>Second, Baidu is expanding into the electric vehicle industry, which could be a catalyst for growth in the coming years. China is the world's largest market for EVs, and the government is continuing to promote the use of EVs to reduce carbon emissions. Baidu formed a strategic partnership with Chinese vehicle manufacturer Geely in January, creating a standalone vehicle manufacturing company in which Baidu is the largest shareholder. The company is expecting to launch the first vehicle in 3 years, and this will be a historic achievement for Baidu and will be an important step in diversifying the revenue sources of the company. As I will discuss in the next segment, I believe Baidu's inroads into the EV industry will lead to an expansion in the company's valuation multiples as well.</p>\n<p>Third, Baidu's significant investments in AI-based products and services will yield handsome rewards in the next 5 years, helping the company grow at stellar rates. As confirmed by CEO Robin Li in the fourth-quarter earnings call, core non-advertising revenue grew 52% in the fourth quarter to an annualized run rate of $2.6 billion, and the company is still in the very early stages of monetizing its AI solutions and cloud computing services.</p>\n<p>Baidu's autonomous driving system Apollo will be a key revenue driver for this business segment, and the company has already signed a strategic partnership with Guangzhou city for an autonomous driving mobility-as-a-service platform, which would be the first of its kind in the world. China, on a national scale, is on a mission to implement smart transportation systems, and Baidu is likely to play a massive role in making these projects a reality.</p>\n<p>The cloud business will also be a strong growth driver as the pandemic has accelerated the growth of cloud computing. As one of the first internet companies in China, Baidu enjoys strong intangible assets, and the company is using these competitive advantages to onboard new clients to its cloud computing platform. Baidu AI Cloud is already the leading AI public cloud platform in China according to IDC, and the company can build on this position as the macroeconomic outlook is favorable.</p>\n<p>Fourth, the recovery of the Chinese economy will lead to strong growth in the advertising industry, and Baidu stands to be a winner of this macroeconomic development as the leading internet search company in the country. The growth of the advertising industry is positively correlated to the real GDP growth of a country, and this paints a promising picture for Baidu's advertising revenue in the next couple of years.</p>\n<p>Overall, Baidu is well-positioned to grow as a result of its timely investments that have paved the way for the company to expand into a few high-growth business sectors.</p>\n<p><b>Baidu's rally has more legs</b></p>\n<p>Baidu shares have rallied in the last 12 months, appreciating more than 190% as the markets recovered from the coronavirus selloff. Baidu stock is currently trading at a forward earnings multiple of 33.51, and there's room for more room for growth.</p>\n<p>The company can no longer be valued as a pure-play tech company that focuses on display advertisements to grow its revenue. The expansion into the high-growth electric vehicle industry will, in my opinion, lead to a significant expansion in earnings multiples in the coming years, especially when the company announces a roadmap to launch the first vehicle. Pure-play EV manufacturers including Tesla, Inc. (TSLA) are richly valued in the market because of the perceived growth opportunities available for this industry, and Baidu can be expected to trade at much higher valuation multiples in the foreseeable future, although not as high as the likes of Tesla.</p>\n<p>Similar to how I believe The Walt Disney Company (DIS) is bound to trade at higher multiples because of its focus on Disney+, I believe Baidu's focus on EVs will be a catalyst for an expansion in earnings multiples as investors will assign a higher value for the company's expected earnings.</p>\n<p>Taking the new developments into consideration, I decided to use a discounted cash flow model to find an intrinsic value estimate for Baidu.</p>\n<p><b>Exhibit 2: Selected valuation assumptions</b></p>\n<p><img src=\"https://static.tigerbbs.com/0f6e1d513667babde27f3b6915ea8ef6\" tg-width=\"640\" tg-height=\"176\"><img src=\"https://static.tigerbbs.com/f0aea583d4ebb9ae4480b8105cf41921\" tg-width=\"640\" tg-height=\"133\"><img src=\"https://static.tigerbbs.com/391a64845aa19ddce681122ffe29ff8d\" tg-width=\"592\" tg-height=\"112\"></p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/d5ab024988ba1402217938faf3d1ab88\" tg-width=\"587\" tg-height=\"263\"><span>Source: Author's projections (1 USD=6.51 CNY)</span></p>\n<p>Going by these estimates, Baidu has an intrinsic value of $327.58 per share, which implies an upside of 30% from the current market price of around $252. It's important to note that these estimates represent my low-end projections as the idea behind my valuation model was to find the minimum value at which Baidu shares should trade in the market.</p>\n<p><b>Takeaway</b></p>\n<p>Baidu is expanding its horizons, and the stock remains significantly undervalued probably due to the negative sentiment toward Chinese stocks. The company seems well-positioned to grow in the next 5 years despite the lack of love it continues to receive in the market. In the long run, I expect investors to be more rational and focus on company fundamentals, which should help Baidu stock converge with its intrinsic value.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Baidu: The Growth Story Is Intact And Shares Are Attractively Priced</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBaidu: The Growth Story Is Intact And Shares Are Attractively Priced\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-03-24 15:30 GMT+8 <a href=https://seekingalpha.com/article/4415737-baidu-growth-story-is-intact-and-shares-are-attractively-priced><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nBaidu shares have appreciated close to 200% in the last 12 months, but this seems to be just the beginning of a massive bull run.\nThe company is expanding its horizons into fast-growing ...</p>\n\n<a href=\"https://seekingalpha.com/article/4415737-baidu-growth-story-is-intact-and-shares-are-attractively-priced\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4415737-baidu-growth-story-is-intact-and-shares-are-attractively-priced","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1156454727","content_text":"Summary\n\nBaidu shares have appreciated close to 200% in the last 12 months, but this seems to be just the beginning of a massive bull run.\nThe company is expanding its horizons into fast-growing business segments.\nShares remain significantly undervalued possibly because of the negative sentiment toward Chinese stocks.\n\nPhoto by fazon1/iStock Editorial via Getty Images\nBaidu, Inc. (BIDU), the Chinese internet search giant, debuted on Hong Kong markets earlier today and became the first tech giant to make a flat debut in Hong Kong. Baidu raised $3.1 billion in Hong Kong at a price of HK$252 per share, and shares advanced 1.8% only to shed those gains later in the day to close flat. It would be irrational to expect a secondary offering to make waves in the market because investors generally find these issues less attractive than IPOs, but Hong Kong has been a hot spot for secondary listings, which makes Baidu's performance today a tad disappointing.\nBaidu ADRs are down 5% today to $252.20 at the time of writing this article, which confirms that U.S.-based investors are reacting negatively to the company's debut in Asian markets. As investors, our focus needs to remain on the long-term outlook for a company, and Baidu, in my opinion, is well-positioned to execute its growth strategy over the next 5 years to grow into a diversified tech giant, which makes the company attractively valued in the market.\nThe new-look Baidu has a long runway for growth\nBaidu is no longer an internet search engine operator that derives the bulk of its revenue from display advertisements. The company has invested millions of dollars in the last 5 years with a view of expanding into more profitable business sectors, and this strategy is beginning to pay off. Baidu shares lost momentum after hitting a fresh high in mid-2018, and the company lost approximately 50% of its market value even before Covid-19 wreaked havoc. There were 3 major reasons behind this disappointing performance between 2018 and 2020.\n\nNegative sentiment toward Chinese stocks as a result of trade tensions between the United States and China.\nBaidu's failure to develop new products and services to monetize its userbase better.\nThe economic growth slowdown in China.\n\nAs long-term-oriented investors, I believe we need to altogether ignore trade tensions because these headwinds are likely to be temporary. Baidu, in the last year or so, has addressed the concerns regarding new products, which I will discuss shortly. The concerns over the expected slowdown in China's economic growth slowdown, on the other hand, proved to be overblown last year as China became the only major economy to report positive growth for 2020.\nBecause China has a headstart in controlling the pandemic, its economy will most likely outpace the growth of many other developed and emerging countries in the foreseeable future, so Baidu and other Chinese stocks will have a strong platform to deliver alpha returns. The 3 major reasons that led to a disappointing market performance from mid-2018 to early 2020, therefore, no longer seem to be in play, and this is likely to help Baidu shares gain momentum in the future.\nComing back to the business strategy of the company, there are significant improvements that paint a very promising picture. First, the improving operating margins of iQIYI(NASDAQ:IQ). The video streaming platform owned by Baidu has consistently accounted for over 25% of company revenue in the last 5 years, and the company's failure to keep customer acquisition costs low negatively impacted company earnings. Things, however, turned for the better in 2020. As illustrated below, iQIYI operating margins improved significantly in the last year.\nExhibit 1: iQIYI operating margins\nSource: Business Quant\nThis improvement in operating margins for iQIYI was one of the main drivers of operating income for Baidu in 2020, and the company seems to be executing its cost reduction strategy efficiently. The OTT content streaming industry in China is expected to benefit from the projected increase in the internet penetration rate, the rollout of 5G technology, the rising middle-income society, and the growth of AI-based content recommendation services. PwC projects the industry to grow at a healthy CAGR of 12.2% through 2024, which will create opportunities for iQIYI to grow steadily and reach profitability.\nSecond, Baidu is expanding into the electric vehicle industry, which could be a catalyst for growth in the coming years. China is the world's largest market for EVs, and the government is continuing to promote the use of EVs to reduce carbon emissions. Baidu formed a strategic partnership with Chinese vehicle manufacturer Geely in January, creating a standalone vehicle manufacturing company in which Baidu is the largest shareholder. The company is expecting to launch the first vehicle in 3 years, and this will be a historic achievement for Baidu and will be an important step in diversifying the revenue sources of the company. As I will discuss in the next segment, I believe Baidu's inroads into the EV industry will lead to an expansion in the company's valuation multiples as well.\nThird, Baidu's significant investments in AI-based products and services will yield handsome rewards in the next 5 years, helping the company grow at stellar rates. As confirmed by CEO Robin Li in the fourth-quarter earnings call, core non-advertising revenue grew 52% in the fourth quarter to an annualized run rate of $2.6 billion, and the company is still in the very early stages of monetizing its AI solutions and cloud computing services.\nBaidu's autonomous driving system Apollo will be a key revenue driver for this business segment, and the company has already signed a strategic partnership with Guangzhou city for an autonomous driving mobility-as-a-service platform, which would be the first of its kind in the world. China, on a national scale, is on a mission to implement smart transportation systems, and Baidu is likely to play a massive role in making these projects a reality.\nThe cloud business will also be a strong growth driver as the pandemic has accelerated the growth of cloud computing. As one of the first internet companies in China, Baidu enjoys strong intangible assets, and the company is using these competitive advantages to onboard new clients to its cloud computing platform. Baidu AI Cloud is already the leading AI public cloud platform in China according to IDC, and the company can build on this position as the macroeconomic outlook is favorable.\nFourth, the recovery of the Chinese economy will lead to strong growth in the advertising industry, and Baidu stands to be a winner of this macroeconomic development as the leading internet search company in the country. The growth of the advertising industry is positively correlated to the real GDP growth of a country, and this paints a promising picture for Baidu's advertising revenue in the next couple of years.\nOverall, Baidu is well-positioned to grow as a result of its timely investments that have paved the way for the company to expand into a few high-growth business sectors.\nBaidu's rally has more legs\nBaidu shares have rallied in the last 12 months, appreciating more than 190% as the markets recovered from the coronavirus selloff. Baidu stock is currently trading at a forward earnings multiple of 33.51, and there's room for more room for growth.\nThe company can no longer be valued as a pure-play tech company that focuses on display advertisements to grow its revenue. The expansion into the high-growth electric vehicle industry will, in my opinion, lead to a significant expansion in earnings multiples in the coming years, especially when the company announces a roadmap to launch the first vehicle. Pure-play EV manufacturers including Tesla, Inc. (TSLA) are richly valued in the market because of the perceived growth opportunities available for this industry, and Baidu can be expected to trade at much higher valuation multiples in the foreseeable future, although not as high as the likes of Tesla.\nSimilar to how I believe The Walt Disney Company (DIS) is bound to trade at higher multiples because of its focus on Disney+, I believe Baidu's focus on EVs will be a catalyst for an expansion in earnings multiples as investors will assign a higher value for the company's expected earnings.\nTaking the new developments into consideration, I decided to use a discounted cash flow model to find an intrinsic value estimate for Baidu.\nExhibit 2: Selected valuation assumptions\n\nSource: Author's projections (1 USD=6.51 CNY)\nGoing by these estimates, Baidu has an intrinsic value of $327.58 per share, which implies an upside of 30% from the current market price of around $252. It's important to note that these estimates represent my low-end projections as the idea behind my valuation model was to find the minimum value at which Baidu shares should trade in the market.\nTakeaway\nBaidu is expanding its horizons, and the stock remains significantly undervalued probably due to the negative sentiment toward Chinese stocks. The company seems well-positioned to grow in the next 5 years despite the lack of love it continues to receive in the market. In the long run, I expect investors to be more rational and focus on company fundamentals, which should help Baidu stock converge with its intrinsic value.","news_type":1},"isVote":1,"tweetType":1,"viewCount":900,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":6,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/351109456"}
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