At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and “initiating coverage at neutral.” Today, we’ll show you whether those bigwigs actually know what they’re talking about. To help, we’ve enlisted Motley Fool CAPS to track the long-term performance of Wall Street’s best and worst.
Time to bail on Baidu.com, Inc. (ADR) (NASDAQ:BIDU)?
No two ways about it — no three ways about it — this week has been a terrible week to own stock in Baidu. On Tuesday, Goldman Sachs Group, Inc. (NYSE:GS) slashed its target price by 34%, cutting the stock to $89 a share while slicing 22% off its earnings estimates for 2013, and another 30% off 2014 earnings.
According to the analyst, “mobile cannibalization and competition with Qihoo 360 Technology Co Ltd (NYSE:QIHU) will pose structural threats to Baidu’s high profit margins.” Combined with slowing revenue growth and a potential alliance between Qihoo and Google Inc (NASDAQ:GOOG) , Goldman sees a much bleaker future for Baidu, warning the company could even “be displaced from its incumbent leadership in the online advertising sector.”
And that was only the start of the bad news.
Soon after Goldman’s harsh note, Barron’s came out with a similarly downbeat opinion on Baidu, warning that they see little hope for the company’s being able to monetize its mobile search traffic and highlighting a Citigroup report urging investors to “sell Baidu now” and not “bottom fish based on price chart or valuation.”
Then, yesterday CLSA jumped on the bandwagon with a downgrade of its own. Echoing Citi’s “sell” rating, CLSA cut Baidu shares to “underperform” on fears of slowing earnings growth, troubles with mobile monetization, and in a new twist, increased competition from a new search engine sponsored by not Qihoo, but Chinese e-commerce giant Alibaba.
Never rains but it pours
So, miserable news all around. And of course, it probably doesn’t help fans of Baidu that at the same time as everyone is panning the Chinese Google, over at Bloomberg yesterday they were starting to talk up the Russian Google instead. In a column Wednesday, the business journal highlighted the fact that Yandex NV (NASDAQ:YNDX) is currently selling at its “cheapest ever” price relative to Google — raising the risk that investors looking for the “next Google” abroad, and discouraged by Baidu’s flagging stock price, may decide to pull money out and give Yandex a spin instead.