Baidu, Inc.

Baidu, Inc. (NASDAQ: BIDU) is a technology-driven firm with artificial intelligence cloud, video streaming services, speech recognition technology, and autonomous driving as primary growth projects. Baidu Core and iQIYI are the two segments in which the company works.

Why should Investors make an Exit?

• Decline in Margins: The company's gross, EBITDA, and net margins fell dramatically year over year. In FY21 (ended December 31, 2021), BIDU's gross, EBITDA, and net margins were 48.3%, 13.4%, and 6.1%, respectively, compared to 64.2%, 35.2%, and 17.8% in FY20.
• Bottom Line Pressure: The company had recorded a significant drop in net income to RMB 7.59 billion in FY21 from RMB 19.03 billion in FY20, due to a substantial increase in operating costs.
• Decline in Free Cash Flow: The company recorded a significant decline in free cash flow to RMB 9.23 billion in FY21 from RMB 19.12 billion in FY20, due to a reduction in cash provided by the operating activities.
• Regulatory and Political Risk: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges. This constitutes significant political and regulatory risks for the firm.

Valuation Methodology: Price/Sales Per Share-based Multiple Based Relative Valuation

Stock Recommendation:

BIDU's share price has remained on a bearish trend, fallen 34.09% in the past twelve months and is currently leaning towards the lower-band of its 52-week range of USD 102.18 to USD 278.21. We have valued the stock using the Price/sales multiple based relative valuation methodology and arrived at a target price of USD 133.86.

Considering the current trading levels, a decline in margins, geopolitical risks, a reduction in free cash flows, and current valuation, we recommend a "Sell" rating on the stock at the closing price of USD 143.83, down 2.61%, as of March 30, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing.

1-Year Technical Price Chart (as of March 30, 2022). Source: REFINITIV, Analysis by Kalkine Group

 * The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.