Baidu, Inc.

BIDU Details

Baidu, Inc. (NASDAQ: BIDU) is the leading artificial intelligence (AI) company based in China. BIDU offers a Chinese language search platform on its "Baidu.com" website, which allows users to find information by clicking on links provided on the site. BIDU operates in two segments: 1) Baidu Core, and 2) iQIYI, platform-based services. The company's main source of revenue is the sale of pay for performance (P4P) online and other marketing services. BIDU has 348.06 million American Depository Shares (ADS) listed and outstanding (each ADS representing eight Class A ordinary shares).

Inorganic Endeavors: BIDU stated on August 24, 2021, that its subsidiary, Xiaodu Technology (Xiaodu), a leading manufacturer of AI-based operating systems and smart displays, has closed its Series B funding at a post-money valuation of USD 5.1 billion. After the transaction, Baidu retains a controlling stake in the company. In November 2020, Xiaodu's Series A funding was completed with a post-money valuation of USD 2.9 billion.

Notes offering: BIDU announced the price of its USD 1 billion aggregate principal amount public offering on August 18, 2021. USD 300 million in 1.625% notes due 2027 and USD 700 million in 2.375% notes due 2031 are part of the public offering.

H1FY21 Results: The company's total revenues increased by 22.45% to RMB 59.48 billion during H1FY21 (ended June 30, 2021) compared to RMB 48.58 billion during H1FY20, primarily driven by cloud and other services. Its net income increased to RMB 23.87 billion during H1FY21 vs. RMB 1.10 billion during H1FY20. BIDU's cash and cash equivalents (including short-term investments) totaled RMB 169.28 billion as of June 30, 2021, with a total debt (including convertible senior notes and notes payable) of RMB 82.00 billion.

Key Risks: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its operations. This came after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm. Further, for its Xiaodu smart devices, BIDU relies significantly on third-party suppliers. If BIDU and these suppliers fail to agree on adequate capabilities or capacity on reasonable terms, it may harm the brand's image, its cash flows, and operations.

Outlook: In its Q2FY21 Press release, BIDU anticipates its revenues for Q3FY21 to be in between RMB 30.6 to 33.5 billion, representing an 8 to 19% YoY growth, assuming Baidu Core revenue will grow by 9 to 20% YoY.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BIDU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: BIDU's share price fell 38.09% in the past six months and is currently trading at the lower-band of the 52-week range of USD 116.41 to USD 354.82. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 53.46. We have valued the stock using the Price/Sales per share-based relative valuation methodology and arrived at a target price of USD 175.27. Considering the company's track record, market dominance, robust fundamentals, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 162.04, down 0.20% as of September 03, 2021, at 12:28 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

JFrog Ltd.

FROG Details

JFrog Ltd. (NASDAQ: FROG) offers a global DevOps platform to achieve continuous software release management (CSRM). Organizations use the CSRM platform to distribute software updates to any system continually. FROG generates revenue via self-managed subscriptions, which include licenses, support, and upgrades and updates as they become available, as well as SaaS subscriptions, which provide users access to FROG's most recent managed version of its product housed in the cloud. JFrog Artifactory, JFrog Pipelines, JFrog Xray, JFrog Distribution, JFrog Artifactory Edge, JFrog Mission Control, and JFrog Insight are the FROG products.

Security and Runtime Technology Expansion: On July 19, 2021, FROG announced the completion of its previously announced purchase of Vdoo Connected Trust Ltd. (Vdoo), a supplier of product security teams and developers to mitigate software risks, for USD 300 million in cash and stock transaction (approximately USD210 million in cash and 1,934,198 in JFrog ordinary shares). FROG’s security and runtime technology expansion is fueled by this acquisition, which offers a holistic security solution as part of its DevOps Platform.

New Integrations with PagerDuty: PagerDuty, Inc., a worldwide pioneer in digital operations management, announced new integrations with FROG products - JFrog Xray and JFrog Pipelines - on June 08, 2021. Customers will benefit from faster resolving problems, increased uptime, improved customer experience, and more revenue generation due to this new integration.

H1FY21 Results: The company reported a 35.37% rise in total revenues to USD 93.74 million during H1FY21 (ended June 30, 2021) compared to USD 69.25 million during H1FY20, due to increase in revenue from existing customers as well as acquisition of new ones. However, FROG witnessed increase in net losses to USD 21.04 million during H1FY21 vs. USD 0.43 million during H1FY20. As of June 30, 2021, its cash and cash equivalents (including short-term investments) stood at USD 615.22 million with no outstanding debt.

Key Risks: FROG's executive officers, directors, 5% or more shareholders, and associated companies owned about 64% of the common shares outstanding as of December 31, 2021. Minority shareholders' capacity to influence corporate affairs may be limited due to the company's concentration of ownership and voting power.

Outlook: As of August 05, 2021, the company expects its Q3FY21 revenue to be in between USD 52 and USD 53 million, with Non-GAAP operating loss between USD 2.6 and USD 3.6 million. FROG expect its Non-GAAP loss per share between USD 0.03 to USD 0.04, assuming 96 million weighted average shares outstanding. FROG expects its FY21 revenues to be in between USD 202 to USD 205 million, with Non-GAAP operating loss between USD 4 and USD 5 million. FROG project its Non-GAAP loss per share between USD 0.04 to USD 0.05, assuming 95 million weighted average shares outstanding.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

FROG Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: FROG's stock price fell 44.49% in the past nine months and is currently trading at the lower-band of the 52-week range of USD 33.38 to USD 95.20. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 42.44. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 41.33. Considering the growth prospects, inorganic expansions, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 37.81, up 0.08% as of September 03, 2021, 2:35 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

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