Baidu upgraded to Buy by Daiwa on resilient search revenue growth

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Daiwa upgraded Baidu to Buy from Outperform, citing resilient core search revenue growth and after raising forecasts for video-streaming subsidiary iQiyi.

“Despite recent upbeat quarterly results for Baidu’s core search, we believe investors remain skeptical on the business,” it said in a note last week. “Although we share long-term concerns, we argue that the market is underestimating the near-term revenue growth potential of Baidu’s core search business on the back of new products launched in recent quarters.”

It pointed to a recovery in the number of advertisers and a pick up in marketing spending per advertiser.

It forecast the segment’s revenue would grow 20 percent on-year this year, which it said was likely higher than the market’s estimates.

Additionally, Daiwa noted it was surprised by iQiyi’s strong revenue growth in 2017, which beat it estimates; it forecasts revenue for the unit will grow 43 percent on-year this year, on the strong content pipeline.

Daiwa raised its target price to US$280 from US$255, based on sum-of-the-parts.

The stock ended Friday down 2.55 percent at US$219.82.