Summit Still Overweight Baidu, Sees 'Significant' Long-Term Mobile Monetization Potential

In a report published Wednesday, Summit Research analyst Henry Guo maintained a Buy rating on Baidu Inc (ADR) (NASDAQ: BIDU), with a price target of $256, saying that the concerns surrounding mobile search monetization appear unwarranted.

Baidu's shares have recently underperformed China internet ADRs, mainly due to fears of deceleration of the company's revenue growth on account of "limited improvement potential for its mobile search monetization." Analyst Henry Guo believes that the "concern overstates current monetization rates for Baidu mobile search, and overlooks mobile search's additional monetization opportunities versus PC search."

Moreover, recent industry checks suggests Baidu's core search business continues to be strong. Guo added that SME strength and the coming "618" shopping day promotion are likely to boost top-line strength in the quarter.

In the report Summit Research noted, "…according to our industry checks and conversation with management, we believe Baidu's ad networks and Hao123 only accounted for roughly thirty percent of total PC search revenue, much lower than some investors' assumption of 40%+."

Guo commented that Baidu's current blended mobile monetization rate reaches merely 60-65 percent of it on PC, in terms of revenue per thousand impressions, which is significantly below the 80-90 percent level estimated by some investors. "As such, we believe Baidu has plenty of room to further monetize its mobile search traffic going forward."

While expressing optimism regarding Baidu's long-term mobile monetization potential, Guo stated that the current valuation of Baidu's shares represent "buying opportunities."