Improving Industry Prospects Make Baidu a Good Investment

Baidu's (BIDU, Financial) outlook is strong as the company is benefiting from Internet growth. Besides, Baidu continues to invest aggressively in its core business and key strategic vicinity as it transits to mobile devices such as smartphones and tablets from its PC search advertising expertise that should help the company to remain competitive with its peers like Alibaba Group and Tencent, two other large Internet companies, who are planning to gear up their e-commerce business that has unmatched opportunity in the market which is yet to be tapped.

Investing for future growth

Baidu is also investing heavily on various platforms such as mobile and cloud, location based services, consumer products, and has definite plans to expand its business internationally. Also the search engine company has invested strategically in iQiyi, online video unit, which will soon be launching an IPO itself. Hence Baidu expects to benefit from this underlying opportunity as the company has broadened its horizons to sectors like media, retail and travel along with financial and local service that should generate great margin for the company going forward.

Baidu has also realized a significant prospect ahead with its diversified ecosystem that spans over media, social, online tools and all kinds of vertical as it moves to search query to physical or virtual fulfillment with its leading cross-platform gateway along with world class technology it has in its fold. This should accelerate its growth in the coming years as growing usages of mobile, smartphones and tablets via Internet has become essential for people, and it throws tremendous opportunity for the company to maximize its profit and increase its share in the market.

Baidu sees a great deal ahead in its mobile search traffic that has reached 160 million daily active mobile users, up from 130 million, two quarters ago. Further the company remains committed to improving its offerings and to strengthen its channel distribution through various strategic initiatives such as optimizing ad formats on search page.

In addition, Baidu remains the best platform to obtain cross-channel leads on the monetization front as its paid clicks, clicks through rates and CPM had strong growth in the reported quarter as the company invested heavily in advanced technologies such as deep learning and natural language processing. Also, the company has added quite exciting features to its site that will help customers target users in specific cities. Customers will now be able to fetch higher ROI from their targeted ads that also enrich the user’s experience as Baidu continues to invest in mobile ecosystem to narrow down the gape between PC and Mobile.

Tremendous progress

Baidu has also made tremendous progress in its large- to small-and-medium-sized enterprises that registered 160 million active users, an increase of 60% from the last couple of quarters. Further the company's recent inclusion of mobile maps has proved beneficial as maps for mobile grew 30% to 190 million as compared to previous quarter. The company constantly expanding its point of interest database which is the largest in the industry and adding ever richer content should help the company grow its business and deliver superior service to its customers.

Baidu has also extended its hands into online games operation in consumer products in the last quarter combining both DuoKu and 91 Wireless. It is pleased with the early results and expects expect its contribution to grow more meaningful in quarters ahead. Baidu also added exciting high-quality content to its online literature operations integrating Zongheng –Â one of China’s largest online literature sites –Â on the consumer product platform that should accelerate its growth in the upcoming quarters.

Wrapping up

Baidu currently trades at forward P/E of 3.61, which states cheap valuation for the company. Besides, the company is providing high operating margin of 32.6% which is comparatively higher than its peers. It also provides profit margin of 31.04%, while total cash flow remains at 6.36 billion. The company had total debt outstanding of 2.90 billion which is well mixed by most measures. Moreover the company is continuously displaying solid growth in its core fundamental such as revenue and net profit with potential outlook could be a definite bet for long term. Also the analysts have estimated CAGR of 25.34%, higher than that of industry’s CAGR of 18.57% for the next five years speaks a lot about its growth in the coming years.