Jefferies On Baidu Investigation: 'Await More Color' From Co., Gov't

Jefferies maintained its Buy rating on Baidu Inc (ADR)

as it "awaits more color from the company and the government" over the medical ad probe. According to a note from Karen Chan, Chinese authorities, including Cyberspace Administration of China, State Administration of Industry and Commerce and the National Health Commission, have launched a probe into Baidu's medical advertisements over the death of a 21-year old university student. The student named Wei Zexi unfortunately died after seeking cancer treatment at a hospital using Baidu's search engine. "[W]e would await more color from the company and the government in addressing public concerns given that medical is an important vertical of high sensitivity," said Chan who noted that Baidu has adopted advertiser verification measures over the past years. According to Baidu, medical is one of its top 5 verticals, with the other 4 being local service, retail, education and finance. These top 5 verticals represent more than 50 percent of Baidu's total revenue. "We estimate medical accounts for 20-25% of Baidu's search revenue but inclusion of more local service advertisers should help diversify revenue concentration over time," Chan added. The Chinese search engine is not new to online medical ad controversies. The analyst said Baidu has been the target of various medical ad issues including commercialization of its illness-related forums on Tieba community in January 2016, Putian Hospital Union boycott in early 2015 and CCTV's report regarding medical companies without proper licenses advertising on Baidu's paid search listings back in 2008. ADRs of Baidu fell 1.97 percent to $175.38, while Chan has a price target of $225.