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Why Baidu Inc. Will Recover From The Hospital Scandal

  • Because of the Hospital Ad scandal, Baidu's share price is at 2013 type levels (sub $170 a share). I smell opportunity.
  • Even if Baidu's earnings takes a hit in the near term, it has a huge e-commerce tailwind which will return the company to meaningful growth.
  • The shift into non search products will affect profitability but will also lay the foundation for peer leading growth.

There is no doubt that the fundamentals for Baidu (NSDQ:BIDU) going forward look very strong indeed. Why? Well the online search giant, incredibly only serves less than 2% of current Chinese small and medium enterprises which illustrates the huge potential the company has ahead of it. Combine this with the fact that only 30% of the Chinese population currently have internet access, and one can easily see that it is these types of companies that will be able to weather a possible draw-down in the Chinese economy. Nevertheless, the press has turned really negative since news broke of the hospital scandal as investors seem to be thinking twice about Baidu as a long term investment. Will this latest scandal permanently derail Baidu's long term growth potential? Let's discuss.

First of all, with the share price now trading at around $170 a share, we now are trading at levels similar to those back in 2013 when the company did $5.2 billion in top line sales along with earnings of $1.71 billion. To put things in perspective, Baidu's twelve-month trailing top line is $10.42 billion with its bottom line...