Citi Downgrades Baidu On Guidance Risk

Citi’s Alicia Yap believes there could be risk of Baidu Inc (ADR) (NASDAQ: BIDU) not being able to meet its 2Q16 revenues guidance, while also potentially guiding to 3Q16 below the consensus expectations.

Yap downgraded the rating on the company from Buy to Neutral and lowered the price target from $238 to $180.

“Although the current share price partially reflects the recent medical incident, we believe Street estimates have yet to fully factor in the potential revenues impact in coming quarters,” the analyst mentioned.

Risk To 2Q Guidance

The analyst noted that Baidu had reported its 1Q16 results and provided the 2Q16 revenue guidance on April 28, a few days before the media reports came out on Zexi Wei.

“We estimate about two months [sic.] impact for keywords revs related to military hospitals and about one month impact for 10–20 percent of PC-based keyword inventory that could be lost after the revamp of search results that limits sponsor links to 4 per page,” Yap stated.

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Baidu had guided to total revenues of Rmb20.11-20.58 billion for 2Q16, implying growth of 28–31 percent, ex-Qunar. The consensus forecast is for revenues of Rmb20.08 billion, while Yap estimates a 7 percent downside risk from the consensus expectations.

For 3Q, the analyst estimates 10 percent downside risk to the current consensus forecast of Rmb21.85 billion.