Analyst Note| Dan Baker |
Wide-moat Baidu has reported a solid fourth quarter, broadly in line with our estimates, with revenue up 6% and operating profit up 7%. Baidu core revenue was up 6% with operating profit down 8%, although the performance here is clouded by the inclusion of the fast-growing Cloud business in the core--Baidu core non-advertising revenue in the fourth quarter grew 52% year over year. iQiyi revenue declined 1% with its operating loss reducing to RMB1.3 billion from RMB 2.5 billion in the previous period, with the reduced iQiyi losses the main driver of Baidu’s operating profit growth. Revenue guidance for the first quarter of 2021 of between RMB 26.0 billion and RMB 28.5 billion represents a growth rate of 15% to 26% and assumes that Baidu Core revenue will grow between 26% and 39%. No YY Live consolidation is included in this guidance. The first quarter of 2021 will cycle the worst quarter of COVID-19 impacts in 2020, which itself saw 7% consolidated revenue decline and an 18% decline in the Core business. We make only minor changes to our Baidu forecasts, and our fair value estimate increases to USD 221, largely due to the stronger CNY. At our fair value the stock would trade on a price-to-earnings ratio of 18 times. With the share price more than doubling since the third quarter result in mid-November, we now see the stock as overvalued.