Don’t Panic About Baidu Inc (NASDAQ: BIDU): iQiyi, Market Dynamics and Other Catalysts

Baidu Inc (NASDAQ: BIDU) stock is in the spotlight as the company’s shares are falling amid viral reports claiming that Baidu is showing low-quality search results for certain queries. According to Reuters, journalist Fang Kecheng wrote in a report that Baidu “no longer” plans on being a good search engine, and the company has become a marketing platform. Baidu admitted the mistake, but said that the search results are being shown because their “media attention” makes them popular.

Earlier this week, Citi analyst Alicia Yap also warned investors about Baidu stock. The analyst said that Baidu Inc (NASDAQ: BIDU) is ramping up its spending when advertisers are putting a hold on their budgets. However, Yap reiterated a “Buy” rating for the stock. The analyst cut price target for the stock to $205 from $262 and opened a 30-day negative catalyst watch for the firm. Yap also warned that Baidu’s fourth quarter results could come in 40% below consensus, and weakness could continue into the first quarter.

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However, we believe that Baidu is still a smart investment target for investors who can wait. Baidu Inc (NASDAQ: BIDU) is one of the biggest internet companies in China. The company is also known as the Google of China, as it is the primary search engine used by millions of Chinese daily.

Analysts think that avoiding Baidu stock based on the fear that the company will be given a tough competition by Google isn’t rational. Recently, Google CEO Sundar Pichai clearly announced that the company has no plans to launch its search operations in China. The Chinese government banned Google search operations in the country back in 2010. Since then, Baidu has evolved to be the top search engine in China.

Baidu Inc (NASDAQ: BIDU) has roughly 150 million daily active users. A whopping 77% of the company’s revenue comes from mobile devices. Millions of Chinese users read their news from Baidu as the company’s app provides in-app news feed. The company’s iQiyi video platform has more than 500 million users, spending 6 billion hours a month on the site.

Even though Baidu Inc (NASDAQ: BIDU) makes most of its money through ads, it’s cutting reliance on ads model quickly. Baidu’s “Other” segment revenue recently jumped by 75%, mostly due to iQiyi platform.

Therefore, Baidu investors should not sell the stock.

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Author does not have investment in stock discussed in this article.

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