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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.

Vipshop Forecast Soft, Raising Concerns About Slowing China Economy

China e-commerce company Vipshop Holdings ( VIPS ) reported strong fourth-quarter earnings but shares fell as first-quarter guidance fell short. The Q1 shortfall reflects economic uncertainties in China and elsewhere as well as competitive pressures from Alibaba ( BABA ) and JD.com ( JD ),  China e-commerce companies. Late Wednesday, Vipshop reported revenue of $2.15 billion, up 65% in local currency year over year. Vipshop posted a 58% increase in the number of active users to 19.8 million and a 67% increase in total orders of 65 million. Earnings per share minus items of 18 cents rose 66% in local currency, beating the consensus estimate of 16 cents. Vipshop stock was down nearly 12%, near 11, in early afternoon trading in the stock market today . JD stock was down 3.5%, near 24.75. Alibaba was down 1.6%, near 66.17. Vipshop expects Q1 revenue to rise 37% to 43%, but analysts expected 44% growth. Last year’s Q1 revenue doubled from the year-earlier quarter. It did not provide an earnings forecast. “Longer term, we remain optimistic on the discount retailing market and continue to believe in Vipshop’s strategic value in the space, which is mainly driven by the company’s merchandising capability and large scale,” wrote Summit Research analyst Henry Guo in a research note. China online gaming company NetEase ( NTES ) reported Q4 earnings late Wednesday that topped forecasts, but its profit margin disappointed and NetEase stock was down 16%, near 134. China Economy An Issue For Vipshop, Others The decline in China Internet stocks come as worries grow about a slowing economy and concerns of Chinese government restrictions on trading. The Shanghai composite, China’s benchmark index, fell 6.4% Thursday. The Shenzen composite, roughly equivalent to the Nasdaq, fell 7.3%. China search leader Baidu ( BIDU ) is set to report earnings after the close Thursday, with analysts looking for guidance on China’s ad market amid an economic slowdown. Baidu stock was down nearly 4%, near 157, Thursday afternoon. Baidu this month announced that it had received a nonbinding proposal from two Baidu executives to acquire the company’s fast-growing Qiyi video unit for $2.8 billion. JD is slated to report Q4 earnings before the market open on Tuesday. The focus is expected to be on JD’s push into online-to-offline (O2O) retailing and other new businesses. JD is banking on its O2O business to help it compete in China’s burgeoning e-commerce arena vs. China e-commerce leader Alibaba and others. Tencent Holdings ( TCEHY ), China’s leader in messaging and gaming, is set to report earnings before the market open March 17. It’s traded in the U.S. over the counter. Tencent, Alibaba, JD and Baidu are the four largest Internet companies in China. On Jan. 28, Alibaba reported earnings for its fiscal third quarter ended Dec. 31 that topped Wall Street expectations. Vipshop is an online discount retailer that sells branded apparel, accessories, home goods and other lifestyle products. It specializes in so-called flash sales, in which a set number of goods are sold over a limited time. “As we diversify our product offering and further enhance the customer experience, we are confident in our ability to drive further growth and value for investors,” Vipshop CEO Eric Shen said in the company’s Q4 earnings release . Vipshop spotlighted its strength in mobile, which accounted for 82% of the total value of goods sold on its website, up from 66% in Q4 2014. It said orders for Vipshop’s core flash sales business jumped 126%. Strong growth in customers and orders in the quarter “implies strong brand awareness among consumers, despite increasing competition in flash sales category from Alibaba and JD.com,” wrote Guo.

China’s NetEase Beats Q4 Revenue And Earnings As Mobile Games Pop

Chinese gaming and Internet company NetEase ( NTES ) late Wednesday posted solid beats in revenue and earnings for the fourth quarter, as its focus on online games gained strength. The company said that revenue from online games, its biggest segment, more than doubled, while mobile original games drove growth. The company’s “Westward Journey Online” and “Fantasy Westward Journey” came in as the top two games in the Apple ( AAPL ) iOS China app store in the fourth quarter, NetEase said. “We saw year-over-year net revenue increases in the fourth quarter of 103.2% from online games, 68.1% from advertising services and 355.5% from email, e-commerce and others,” NetEase Chief Executive  William Ding said in a statement. “Business is thriving across our game and Internet service offerings. In 2015 our advertising services revenues continued to grow.” Ding said the company’s mobile portfolio now consists of more than 80 games. “Mobile games are driving rapid new growth. The steps we have taken over the last year to enhance our mobile capabilities have secured our position in the mobile arena,” he said. NetEase is best known for its desktop PC games and has had a lucrative exclusive license for Activision Blizzard ’s ( ATVI ) “World of Warcraft” in mainland China since 2009. The company also develops its own games, mostly the multiplayer variety played on desktop PCs and mobile devices. Looking to bring its most popular titles to more English speakers, Beijing-based NetEase opened its first U.S. office, in the San Francisco suburb of Redwood Shores, Calif., in February 2015. NetEase is a home-field favorite on China’s gaming scene, ranking a close second to titan Tencent Holdings ( TCEHY ). NetEase said fourth-quarter net revenue jumped 128% in local currency to RMB 7.90 billion ($1.22 billion), above the RMB 7.69 billion analysts polled by Thomson Reuters had forecast. The company said earnings per American depositary receipt were RMB 16.34 ($2.52), up 69% in local currency. Analysts had expected RMB 14.79. NetEase did not provide guidance for the first quarter of 2016. Analysts polled by Thomson Reuters expect net revenue to rise 126% in local currency to RMB 8.27 billion ($1.26 billion). Analysts expect adjusted earnings per share to rise 45% to RMB 13.97 ($2.14). NetEase stock rose 1% on Wednesday to close near 160. NetEase stock is up 43% in the past 12 months and held the No. 3 spot in Wednesday’s midweek update of the IBD 50.