Credit: Shutterstock photoLike Google (GOOG), Baidu (BIDU) is synonymous with search in China and has rewarded investors greatly, with shares having appreciated 1,573% since going public in August 2005.
Yet even after all of this, there may be additional upside for investors as the company pushes into newer areas outside of just search, including video and online travel, according to Pacific Crest Securities analyst Cheng Cheng.
"A sum-of-the-parts analysis suggests an attractive valuation for BIDU currently and is, in our view, the more appropriate way to look at the stock given optionality around video and online travel," Cheng wrote in a note. The analyst has a price target of $255 on shares, indicating there's almost another 25% upside from where shares are currently trading.
Though Baidu owns about 70% of the Chinese search market according to Chinainternetwatch.com, Wall Street is infatuated with other areas, including its stake in Qunar, the online travel company, as well as its stake in iQiyi, which is quickly becoming a major player in the video space in China.
Baidu ()Catalysts to get Baidu shares to move higher include allowing its stake in Qunar, which is publicly traded, to become unconsolidated from Baidu's financial statements. The same holds true for its stake in iQiyi, despite it being a privately-held company.
There's also the potential for additional acquisitions in the online travel and video spaces, but no targets were specifically mentioned.
Baidu is growing revenues at 33% per annum and its margins are stable, but its being valued at a discount to its sum of the parts, according to Cheng.
Margins from the company's search business, which is estimated to generate $9.63 billion in revenue this year according to Cheng, are expected to stay steady, despite the increased spending in video and other opportunities, which should provide investors some relief. "We believe this type of margin profile is significantly better than what investors are expecting after multiple years of margin compression and should provide investors more confidence around Baidu's core search business."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
