Believing in Baidu Stock Again

Source: Baidu.

The sharp correction in shares ofBaidu finds at least one Wall Street pro feeling opportunistic. Jefferies is kicking off the new trading week by upgrading shares of China's leading search engine to "buy" and slapping on a price target of $210.

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Let's not kid ourselves here. This move appears to be mostly about the slide in the stock, which begins the week at $152.13, 40% below its all-time high of $251.99 set last November. After all, the analysts at Jefferies downgraded Baidu stock to "hold" just three months ago, lowering its price target from $253 to $196 at the time.

There's a big difference between $253 and $210. We're not at the same level of optimism before Baidu's poorly received first-quarter report,where revenue and top-line guidance fell short of expectations. Jefferies went on to downgrade the former dot-com darling following the report, concerned about weakness in desktop-based revenue, margin contraction, and the inability of Baidu Wallet to be a stronger player in processing financial transactions given Baidu's goal to matter more in the online-to-offline market.

One can rightfully argue as well that there's also a big difference between $210 and $196. Jefferies is encouraged by reports that performance-based ads are starting to click for Baidu. This isn't the kind of development that's going to jack up Wall Street profit targets back to where they were earlier this year, but it's encouraging to know that Baidu's efforts to be a bigger player in market categories that aren't as lucrative as paid search are showing some level of improvement.

China's market has been rocked in recent months. Baidu isn't the only fast-growing tech company that's been going through a sharp stock correction. China's once red-hot economy is going through growing pains, and that naturally weighs on a company like Baidu that needs resiliency for the marketers who lean on Baidu to generate leads.

Baidu has been able to grow through China's hiccups in the past, but things are different now that it's throwing more money at online niches including online video, group-buying hubs, and food delivery that will never pack the same kind of margins as its original business.

That's not going to change. Baidu wants to be everywhere. This morning's Investor's Business Daily profiles Baidu's push into health information. Baidu Jianking is a health portal that's ramping up the ability to let users book and manage online appointments. Looking at its stock chart these days, one can always argue that Baidu is the one that should be calling in sick, but as one or more of these initiatives pay off, it won't be just Jefferies stepping up to raise the bar on the stock's prospects.

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