The company behind China's leading search engine is moving higher again. Baidu (NASDAQ: BIDU) shares have risen 12% so far in 2018, ascending in each and every month this young year. The dot-com darling is now less than 5% away from the all-time high it hit late last year.
Baidu's rolling, and at least one Wall Street pro sees the stock heading even higher. Han Joon Kim at Deutsche Bank initiated coverage of Baidu with a buy rating on Thursday, slapping a $319 price target on the shares. Given its dominant position in search, leading-edge initiatives in artificial intelligence, and the upcoming IPO of its iQiyi video-streaming subsdiary there are a lot of reasons to get excited about Baidu in the near term.
Rocking into March
Search continues to be the lead driver at Baidu, and that was evident last month, when it posted better-than-expected fourth-quarter results. Revenue rose 29% -- it's heartiest top-line gain in two years -- as paid search continues to bring home the bacon.
Things are also progressing on the AI front, one of the few non-search markets that Baidu has tapped as a priority after bowing out of other profitless niches. From self-driving cars to speech recognition, Baidu is making small bets in several areas that may pay off nicely in the future. It announced a partnership on Friday with Skyworth, an electrical household appliance maker in China, to create an AI ecosystem for smart homes.
Then we get to iQiyi, the fast-growing video subscription service that's been a drag on Baidu's bottom line. Taking it public should be a win-win situation. Baidu's enhanced share class will allow it to continue to have a controlling stake in iQiyi, but the IPO will allow it to deconsolidate the red ink from its own reports. Marbridge Daily is reporting that iQiyi plans to go public at the end of this month.
Taking iQiyi public should flood Baidu's coffers with money, but that's not a big deal for a company that's already flush with cash. Moody's also upgraded Baidu's credit rating last week, one more sign of validation for the stock that has been one of the market's biggest winners since going public at a split-adjusted price of $2.70 in the summer of 2005. The stock would become a 100-bagger on the way to taking out its previous all-time highs.
A smooth ascent is obviously not a guarantee. Baidu's history has been volatile, and it will take some time for many of its catalysts to play out. However, as excitement builds for the upcoming iQiyi market debut and a likely strong current quarter in the works -- Baidu's guidance calls for 25% to 32% revenue growth on a reported basis but a 29% to 36% pop if we back out the businesses it unloaded last year -- momentum is squarely in its corner right now.
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