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Baidu Advised To Pull A Google And Split Core, Noncore Businesses

Baidu ( BIDU ) stock jumped Friday and the China search leader got at least one upgrade after the company said its mobile business was gaining traction, in posting Q4 earnings that beat views. The company’s revenue guidance for the current quarter, however, fell short, and the slowing China economy has taken a toll on most of China’s Internet stocks. Baidu stock, though, was up more than 9% in midday trading in the stock market today , near 173, its highest price since early January. Baidu stock has risen 73% since late August but has declined 16% in the past 12 months. Other China stocks also rose on Friday. Alibaba Group ( BABA ) and JD.com ( JD ) were up nearly 1% and 1.5% in midday trading, while Vipshop Holdings ( VIPS ) and NetEase ( NTES ) were up a fraction. Summit Research analyst Henry Guo upgraded Baidu stock to buy from hold on Friday and raised his price target to 195 from 169. “We are not so enthusiastic about Baidu’s December-quarter revenue results and March-quarter revenue guidance; however, we are deeply impressed by the strong margin expansion the company achieved in the December quarter,” wrote Guo in an industry note. “Strong momentum” in mobile defined the quarter, he said. Mobile contributed 56% of total revenue in Q4, up from 50% in Q3. Mobile search users rose 21%, he said, while the Baidu Wallet mobile payment service saw activated accounts soar 183% to 53 million. Baidu Wallet competes with Alibaba’s Alipay. Negatives included a 10.9% decline in advertising customers from Q3, Guo said, fallout from Baidu’s deconsolidation with major Chinese online travel agency Qunar ( QUNR ). To continue its growth, Baidu should follow in the footsteps of Alphabet ( GOOGL )-owned Google “and split its non-core businesses from its core search and ads business. If they do this, Baidu stock would likely receive a big boost leaving them with the cash to make a foray into the U.S. market,” Taiwan-based Sephi Shapira, CEO of mobile advertising platform MassiveImpact, told IBD via email. Baidu Investing In Self-Driving Cars, More Like Alphabet, Baidu is investing to develop self-driving cars and other technology not related to its core search operations. In November, Baidu announced it had submitted an application for a direct-banking license in partnership with China’s Citic Bank and for an online insurance license in partnership with Allianz and Hillhouse Capital. This month, Baidu announced that the company has received a nonbinding proposal from two Baidu executives to acquire the company’s fast-growing Qiyi video wing for $2.8 billion. The nonbinding proposal came from Baidu CEO Robin Yanhong Li and Qiyi CEO Yu Gong, Baidu said. The pair have proposed acquiring all of the outstanding shares of Qiyi owned by Baidu, based on an enterprise valuation of $2.8 billion. Should the deal be approved by a special committee formed by Baidu to review the offer, Qiyi will remain a strategic partner but will be independent. Baidu owns 80.5% of Qiyi’s total outstanding shares. As the company offered discounts to win more online-to-offline (O2O) customers, Baidu’s spending also rose. Selling, general and administrative expenses rose 28% year over year to RMB 4.528 billion ($699 million), mainly due to an increase in promotional spending for its transaction services. Last June, Baidu announced it would invest $3.2 billion during the next three years to bolster its lineup of O2O by fortifying group-buying website Nuomi, which Baidu acquired for $160 million in 2014. Baidu has emphasized that big upfront spending to establish its O20 business will pay off because its vast abilities in search will eventually translate to revenue from business commissions. The O2O business model aims to attract customers online and then direct them offline to make purchases at physical stores and to services including health care and food delivery. In October, Baidu-backed Qunar announced a share swap with Ctrip.com ( CTRP ), another leading Chinese online travel agency, in October. Ctrip and Qunar together have a majority of the China hotel and air ticket market. In Q4, Baidu revenue rose 33% year over year in local currency to $2.88 billion, or RMB 18.69 billion. Analysts polled by Thomson Reuters had expected  RMB 18.54 billion. For Q1, Baidu guided to revenue of RMB 15.41 billion ($2.37 billion) to RMB 15.97 billion ($2.46 billion)., up 21% to 25.5% in RMB.

Baidu Stock Soars After Hours As Q4 Revenue Beats

China search leader Baidu ( BIDU ) reported Q4 revenue late Thursday that beat Wall Street’s expectations, sending Baidu’s stock up by double digits in after-hours action. Riding along with volatile China stocks feeling the impact of a slowing economy at home, Baidu’s U.S. stock is up 58% since late August but down 23% in the past 12 months, after closing Thursday’s regular session at 158.22, down 2.8%. After hours, shares of China Internet giant  Alibaba ( BABA ) were up more than 1.5% and shares of China e-commerce giant JD.com ( JD )were  up more than 1%. For Q4, Baidu saw revenue rise 33% year over year in local currency to $2.88 billion, or RMB 18.69 billion. Analysts polled by Thomson Reuters had expected RMB 18.54 billion, up 32% in local currency. Baidu posted Q4 EPS  excluding the net gain recognized from Baidu’s Oct. 26 exchange of  Qunar ( QUNR ) shares with fellow China online travel firm  Ctrip ( CTRP )  of RMB 7.61, or $1.18. Analysts polled by Thomson Reuters had expected EPS of RMB 6.62. The company guided Q1 revenue of RMB 15.41 billion to RMB 15.97 billion ($2.379 billion to $2.465 billion).  On an apples-to-apples basis, excluding Qunar from Baidu’s financials, the guidance represents a 27.8% to 32.5% year-over-year revenue increase, the company said. But that still missed the analyst consensus estimate for RMB 16.32 billion Baidu-backed Qunar announced its share swap with Ctrip.com, another leading Chinese online travel agency, in October. In the company’s earnings release, Baidu CEO Robin Li called 2015 “a touchstone year for Baidu: We made significant progress in broadening our online marketing platform and further extending our reach into transactions services. Even as China’s overall growth slows, services and domestic consumption are growing.” Company executives were slated to hold a conference call with analysts late Thursday. Baidu’s top revenue vertical markets — retail/e-commerce, local services, financial services, health care and education — “reflect Baidu’s vital role in connecting users with merchants in these growing sectors,” Li said in his statement. For Q1, Baidu is guiding revenue in an amount ranging from RMB 15.41 billion ($2.37 billion) to RMB 15.97 billion ($2.46 billion). That’s up 21.1% to 25.5% year-over-year in RMB. On an apples-to-apples basis, excluding Qunar from Baidu’s financials, the Q1 guidance represents a 27.8% to 32.5% year-over-year increase, Baidu said. As a result of Baidu’s exchange of Qunar shares with Ctrip, Baidu deconsolidated Qunar’s financials after Oct. 26. Online-To-Offline A Baidu Focus In June 2015, Baidu announced it would invest $3.2 billion during the next three years to bolster its lineup of online-to-offline, or O2O, offerings by fortifying group-buying website Nuomi, which Baidu acquired for $160 million in 2014. Baidu has emphasized that big up-front spending to establish its O20 business will pay off because its vast abilities in search will eventually translate to revenue from business commissions. The O2O business model aims to attract customers online and then direct them offline to make purchases at physical stores and to services including health care and food delivery. Earlier this month, Baidu announced that the company has received a nonbinding proposal from two Baidu executives to acquire the company’s fast-growing Qiyi video wing for $2.8 billion. The nonbinding proposal came from CEO Li and from Qiyi CEO Yu Gong, Baidu said. The pair have proposed acquiring all of the outstanding shares of Qiyi owned by Baidu based on an enterprise valuation of U.S. $2.8 billion. Should the deal be approved by a special committee formed by Baidu to review the offer, Qiyi will remain a strategic partner, although it will be independent. Baidu currently owns 80.5% of Qiyi’s total outstanding shares.  

Comcast, Verizon Seen As ‘Willing, Aggressive’ Yahoo Buyers

Comcast ( CMCSA ), Verizon ( VZ ) and AT&T ( T ) would make perfect buyers for sagging  Yahoo ( YHOO ), says investment bank Mizuho Securities. All three companies “would be willing to bid aggressively for Yahoo in order to gain access to Yahoo’s user base and online advertising assets,” wrote Mizuho analyst Neil Doshi in a research note Thursday. “There is no shame in selling the core business to a strategic buyer. Tim Armstrong sold AOL to Verizon for $4.4 billion, an impressive outcome for most parties involved.” Yahoo’s board also “seems to be at odds” with Yahoo CEO Marissa Mayer and the two-year strategic plan that she recently proposed, Doshi said. “This rift could be exacerbated if the board gets compelling offers that Ms. Mayer is not willing to accept. We haven’t come across many investors that are thrilled about Mayer’s two-year strategic plan, so we’re not optimistic that she will have success on this front.” Almost all of Yahoo’s current value stems from its stake in China Internet powerhouse Alibaba Group ( BABA ). The company’s turnaround plan includes continued investment in what the company calls “Mavens,”  an acronym for Yahoo’s mobile, video, native advertising and social businesses, where its ad revenue is growing. Mayer said the Web portal will narrow its focus to four areas — news, sports, finance and lifestyle.  “A simplified Yahoo will yield better focus, execution and increase shareholder value,” she said in the company’s Q4 earnings conference call. Mayer reportedly will further  outline her turnaround plan  before two major hedge funds that are major Yahoo shareholders, Millennium Partners and Mason Capital, according to a report Wednesday in the New York Post. That news report comes on the heels of Mayer’s hiring of Manhattan-based Innisfree M&A to help recruit investor support, as activist investor Jeff Smith of Starboard Value pushes for Mayer to leave. Yahoo this month said it would cut 15% of its workforce, close five non-U.S. offices and look to sell non-core divisions and assets, such as patents and real estate, as part of a strategic plan to return the company to modest-though-accelerating growth in 2017 and 2018. By year-end, Yahoo said it anticipates having about 9,000 employees and fewer than 1,000 contractors, representing a workforce that is 42% smaller than it was in 2012. It expects to save $400 million a year in short-term operating expenses from these cuts. Yahoo stock, up a fraction in afternoon trading in the stock market today , near 31, has tumbled nearly 40% since the start of 2015.