Investors Business Daily reported that Summit Research gave another cut on Baidu’s target share price last Wednesday. That was the second cut on its target share price within two months, indicating the whole industry worries about the development of Baidu oriented O2O market. Even though this Chinese SEO giant made great investment on O2O market, it still faces intense competition.
Henry Guo, the analyst from Summit Research pointed out in his report, currently the Chinese consumers are bound up in those positive popularization and discounts from different top-selling platforms. He worries about the profitability of such business in a short period.
He added: “Considering the intense competition among the O2O industry, we assume that Baidu’s investment on O2O will delay the profitability for years in this industry”.
He reduced its target share price from $205 to $150. Early in this July, he had already adjusted Baidu’s target share price from $256 to $ 205. In the meantime, Summit Research degraded its share grade from ” Buy” to Hold”.
He feels that such radical investment will make Baidu facing much pressure on its interest rate. He lowered its non-GAAP benefit expectation by 4.5% and 13.9% for 2015 and 2016. They estimate its non-GAAP benefit expectation will be $5.65 per share in 2015, and $ 7.48 for 2016, while the analysts expects its average benefit expectations come respectively as $6 and $7.72.
Baidu made continuous investments on O2O business, but its second season revenue did not meet its expectation. There were three agencies were reduced their share grades.
Early in June, Baidu announced that it will invest $3.3 billion in three years to enhance group-buying business Nuomi to develop O2O business. Baidu spent $160 million to realize the acquisition of Nuomi in 2014.
Baidu aims to expland some E business market share through developing O2O business to challenge Alibaba or other enterprises. Alibaba is now expanding to O2O retail business, JD and Tencent also set foot in O2O business.