Summit’s Guo Downgrades Baidu On O2O Concerns

Summit Research has downgraded Baidu from Buy to Hold, citing weak margins due to the company’s O2O investment initiatives. In a new note, analyst Henry Guo discusses the impact that O2O spending is having on Baidu and what shareholders can expect in coming months.

Core Business Remains Strong

Guo notes that Baidu’s core search business continues to deliver. In fact, he believes that the search business could be strong enough to drive Baidu to deliver in-line revenue throughout the rest of 2015, despite the recent weakness in the Chinese economy.

However, Guo warns that investors shouldn’t expect much upside to advertising revenue, as the typical approach in China right now from an ad budget standpoint is one of caution.

Bottom Line Weakness

While Guo believes that Baidu has a good chance at meeting top-line consensus estimates in Q3 and Q4, Summit’s downgrade is…

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