高盛-百度-自动驾驶出租车的机遇及广告疲软但盈利稳定买入

16July2024|8:41PMHKT

BInc.(BIDU)

Buy

AnalysisonRobotaxiopportunityanduniteconomics;2Qpreview:neartermadssoftnessyetstableprofit;Buy

BIDU12mPriceTarget:$144.00Price:$93.15Upside:54.6%

9888.HK12mPriceTarget:HK$141.00Price:HK$91.15Upside:54.7%

Overthepastfewweeks,wehaveseenfasterthanexpected

progressonRobotaxipolicyroll-out,withmorecities(Shanghai,

Beijingetc.)nowsupportingthedevelopmentoffullydriverless

vehicles,andallowingRobotaxiridehailingbusinesses.InthisnoteweframeBaiduApollo’sRobotaxipotential,especiallyasBaidu’s

nextversionRT6issettolaunchbeforeendof2024andislikelytoseefasteruseradoptionfromhere.

Atthisrelativelyearlystage,webelievethecontinuedpolicy

supportfromcitylevelgovernmentsandtheincreasingcoverageandavailabilityofRobotaxicarfleetsaremostimportantto

stimulateuseradoption.Whiletheymaycontributesignificantlyto

Baidu’srevenueinthenearterm,thegrowingscaleofcar

fleet/mileageandimprovinguniteconomicsarealsoimportantfactorstowatch.

Onunitprofits,webelievethekeyfactorsare1)Avg.pricepertrip,

i.e.discountlevelvs.normaltaxi/ridehailing(BaiduRobotaxi

_

currentlyoffersa80%discount),2)Utilizationrateofcars/numberoftrips(currentlyat60%+),and3)thenumberofsafetypersons

pervehicle,whichiscurrentlyat1personmonitoring2cars.Ina

citylikeWuhan,postthenextversionRT6launch(totalcostaroundRMB250Kpercar),andwithBaiduaimingtoreach100%fully

driverlesscarsfortheApollooperationinWuhanintheneartermandgradualphase-outofdiscounts,wecalculatetheunit

economicspercarcouldturnpositivein2025.Avg.operating

profitpercarperdaycouldrangefromRmb25to300,basedonourcalculation.

OnTAM,ashighlightedbyourglobalteamearlier,theglobal

Robotaximarketsizecouldreach$25bninthelongterm,implying

LincolnKong,CFA

+852-2978-6603|lincoln.kong@GoldmanSachs(Asia)L.L.C.

RonaldKeung,CFA

+852-2978-0856|ronald.keung@GoldmanSachs(Asia)L.L.C.

SteveQiu

+852-2978-2672|steve.qiu@GoldmanSachs(Asia)L.L.C.

LuqingZhou

+852-3465-4207|luqing.zhou@GoldmanSachs(Asia)L.L.C.

KeyData

Marketcap:$32.7bnEnterprisevalue:$13.1bn3mADTV:$376.1mn

chinachinaGames,Entertainment&HealthcareTechM&ARank:3

Leasesincl.innetdebt&EV?:No

GSForecast

Revenue(Rmbmn)New

Revenue(Rmbmn)OldEBITDA(Rmbmn)

EPS(Rmb)New

EPS(Rmb)OldP/E(X)

P/B(X)

Dividendyield(%)CROCI(%)

EPS(Rmb)

12/23134,598.0

134,598.035,239.0

81.07

81.0711.5 1.30.017.3

3/24

19.92

12/24E137,756.3

138,755.041,911.6

80.02

81.438.50.90.015.3

6/24E

18.57

12/25E146,533.5

149,078.545,752.3

84.25

86.028.00.80.015.2

9/24E

20.59

12/26E155,863.8

159,900.850,182.9

92.68

95.277.30.70.015.7

12/24E

20.94

GSFactorProfile

Growth

FinancialReturns

Multiple

Integrated

Percentile20th40th60th80th100th

BIDUrelativetoAsiaex.JapanCoverage

BIDUrelativetoChinaGames,Entertainment&HealthcareTech

Source:Companydata,GoldmanSachsResearchestimates.Seedisclosuresfordetails.

GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,

investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthis

report.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcertificationandotherimportantdisclosures,seetheDisclosureAppendix,orgoto

/research/hedge.html.Analystsemployedbynon-USaffiliatesarenotregistered/qualifiedasresearchanalystswithFINRAintheU.S.

GoldmanSachs

BInc.(BIDU)

阝uvRatingsinceMay8,2018

Ratios&Valuation

P/E(X)P/B(X)

FCFyield(%)

EV/EBITDAR(X)

EV/EBITDA(excl.leases)(X)CROCI(%)

ROE(%)

Netdebt/equity(%)

Netdebt/equity(excl.leases)(%)Interestcover(X)

Daysinventoryoutst,salesReceivabledays

DayspayableoutstandingDuPontROE(%)

Turnover(X)Leverage(X)

Grosscashinvested(excash)(Rmb)Averagecapitalemployed(Rmb)

BVPS(Rmb)

12/23

11.5 1.3 7.5 5.7 5.7 17.3 11.9(51.4)(51.4)

--

--

30.6213.3 10.9 0.31.5

,

289199.0

272,846.0713.75

12/24E

8.5 0.9 11.5 2.5 2.515.3 10.6(53.5)(53.5)

--

--

29.1200.5 9.9 0.31.5

307,025.0

,

298755.5

784.29

12/25E

8.0 0.8 12.9 1.7 1.7 15.2 10.2(57.0)(57.0)

--

--

28.5174.0 9.3 0.31.4

324,244.1303,020.4874.54

12/26E

7.3 0.7 15.0 0.8 0.8 15.7 10.0(60.7)(60.7)

--

--

28.5154.5 9.3 0.31.4

341,504.5

,

305801.9

974.18

Growth&Margins(%)

12/2312/24E12/25E12/26E

Totalrevenuegrowth

EBITDAgrowthEPSgrowth

DPSgrowth

EBITmargin

EBITDAmargin

Netincomemargin

6.49.710.0NM22.232.220.9

6.49.25.3NM21.831.220.2

2.318.9(1.3)NM21.630.420.4

8.822.536.6NM20.726.221.4

PricePerformance

BIDU($)NASDAQComposite

18022,000

16020,000

14018,000

12016,000

10014,000

8012,000

Oct-23Jan-24Apr-24Jul-24

3m6m12m

Absolute(3.2)%(14.6)%(37.6)%

Rel.totheNASDAQComposite(16.7)%(30.8)%(52.3)%

Source:FactSet.Priceasof15Jul2024close.

BInc.(BIDU)

IncomeStatement(Rmbmn)

12/2312/24E12/25E12/26E

Totalrevenue

costofgoodssoldSG&A

R&D

otheroperatinginc./(exp.)EBITDA

Depreciation&amortizationEBIT

Netinterestinc./(exp.)

lncome/(loss)fromassociates

Pfit

provisionfortaxesMinorityinterest

preferreddividends

Net。inc.。(pre-exceptionaIs)post-taxexceptionals

Net。inc.。(post-exceptionaIs)

EPS。(basic,。pre-except)。(Rmb)

EPS。(diIuted,。pre-except)。(Rmb)EPS。(basic,。post-except)。(Rmb)EPS。(diIuted,。post-except)。(Rmb)DpS(Rmb)

Div.payoutratio(%)

134,598.0(64,793.0)(21,841.0)(20,115.0)

--

35,239.0 (7,390.0)27,849.0 4,761.0 (3,799.0)34,510.4 (3,649.0)1,504.0

--

28,747.0(7,198.0)

21,549.0

81.9381.0761.4257.29

--

0.0

137,756.3(65,950.0)(21,767.4)(20,233.6)

--

41,911.6(12,106.3)29,805.3 4,638.3(1,005.1)

34,241.6(4,772.6)(509.7)

--

28,082.2(5,533.4)

22,548.8

80.3680.0264.5360.96

--

0.0

146,533.5(70,607.0)(22,807.5)(21,211.3)

--

45,752.3(13,844.6)31,907.6

5,161.0(1,005.2)

36,047.6(4,866.4)(1,353.0)

--

29,566.4(4,887.0)

24,679.484.6184.25 706.266.47

--

0.0

155,863.8(74,788.1)(24,214.4)(22,240.6)

--

50,182.9(15,562.1)34,620.8

6,203.8(1,005.0)

39,801.7

(5,373.2)(1,640.7)

--

32,525.1(4,753.2)

27,771.9

93.0892.6879.4774.46

--

0.0

BalanceSheet(Rmbmn)

12/2312/24E12/25E12/26E

cash&cashequivalentsAccountsreceivable

lnventory

othercurrentassets

Totalcurrentassets

NetPP&E

Netintangibles

Totalinvestments

otherlong-termassets

Totalassets

Accountspayableshort-termdebt

short-termleaseliabilitiesothercurrentliabilities

Totalcurrentliabilities

Long-termdebt

Long-termleaseliabilitiesotherlong-termliabilities

Totallong-termliabilitiesTotalliabilities

Preferredshares

Totalcommonequity

Minorityinterest

Totalliabilities&equity

Netdebt,adjusted

36,734.010,848.0

--

182,673.0

230,255.0

27,960.022,586.072,623.053,335.0

406,759.0

37,717.013,061.0

--

25,673.0

76,451.0

57,357.0

--

10,343.0

67,700.0144,151.0

--

253,091.0

9,517.0406,759.0

(134,986.0)

46,717.011,102.5

--

183,243.7

241,063.3

26,484.222,586.075,623.052,542.4

418,298.9

34,744.85,820.0

--

25,274.9

65,839.7

57,357.0

--

10,343.0

67,700.0133,539.7

--

275,242.1

9,517.0418,298.9

(152,210.0)

74,788.111,809.9

--

184,374.6

270,972.7

22,738.522,586.078,623.052,770.6

447,690.8

32,562.65,820.0

--

25,175.2

63,557.9

57,357.0

--

10,343.0

67,700.0131,257.9

--

306,915.9

9,517.0447,690.8

(180,281.1)

107,796.112,561.9

--

185,595.6

305,953.6

17,780.322,586.081,623.053,032.8

480,975.7

30,739.45,820.0

--

25,315.1

61,874.5

57,357.0

--

10,343.0

67,700.0129,574.5

--

341,884.2

9,517.0480,975.7

(213,289.1)

CashFlow(Rmbmn)

12/23

12/24E

12/25E

12/26E

Netincome

21,549.0

22,548.8

24,679.4

27,771.9

D&Aadd-back

7,390.0

12,106.3

13,844.6

15,562.1

Minorityinterestadd-back

--

--

--

--

Net(inc)/decworkingcapital

(13,067.0)

(10,585.4)

(10,468.1)

(9,954.0)

Otheroperatingcashflow

20,743.0

14,773.7

13,846.8

14,011.2

Cashflowfromoperations

36,615.0

38,843.3

41,902.7

47,391.2

Capitalexpenditures

(11,190.0)

(10,630.5)

(10,099.0)

(10,603.9)

Acquisitions

(1,602.0)

(3,000.0)

(3,000.0)

(3,000.0)

Divestitures

--

--

--

--

Others

(37,323.0)

(688.8)

(732.7)

(779.3)

Cashflowfrominvesting

(50,115.0)

(14,319.3)

(13,831.6)

(14,383.2)

Repaymentofleaseliabilities

--

--

--

--

Dividendspaid(common&pref)

--

--

--

--

Inc/(dec)indebt

--

--

--

--

Otherfinancingcashflows

(14,162.0)

(14,541.0)

0.0

0.0

Cashflowfromfinancing

(14,162.0)

(14,541.0)

0.0

0.0

Totalcashflow

(27,662.0)

9,983.0

28,071.1

33,008.0

Freecashflow

25,425.0

28,212.8

31,803.8

36,787.3

_

Source:Companydata,GoldmanSachsResearchestimates.

16July20242

GoldmanSachsBInc.(BIDU)

thataglobalfleetofafewmillioncommercialAVsusedforridesharecouldbeonthe

roadin2030.Chinanowhasc.4-5mnridehailingcarstotalinoperation;forillustrativepurposes,ifweassume5%Robotaxipenetrationinthelongtermandsimilarpricingtonormaltaxis,thiswouldtranslatetoRMB35bn/US$5bninTAMsize.

ApartfromRobotaxi,Baiduislikelytoseeneartermsoftnessinadvertisingdueto

weakmacroandthecompany’seffortstorevampitssearchexperiencethroughAI

initiatives.Weexpectadstoturnpositivefromendofyear,whilecloudbusinessissettoacceleratetowards20%levelin2H24.Currentsharepriceimplies8X2024EPE,

suggestingnovalueassignedforitsrichcashreserve(US$19bn,60%ofmarketcap)or

itsApollo/Robotaxibusiness(currentlylossmakingatanest.RMB3-4bnp.a,butweexpectlossestonarrowquicklyin2025).MaintainBuywitharevised12mTPof

US$144/HK$141.

FramingBaidu’sRobotaxiopportunity

WhathasbeenachievednowinWuhan?

BaiduApolloGoservicesoperatedwith300RobotaxisinWuhanin1Q24,andc.70%oftotalorderswerefullydriverlessatthattime.Therehasbeenmeaningfulprogressin

2Q24QTD,withmoreRobotaxisinoperationandthepenetrationrateoffullydriverlessrideskeepingonrising.Inaddition,BaiduhaslauncheditsnextgenerationRobotaxi

RT6,pricedatc.Rmb205kwithoutbattery,whichachievedac.50-60%costcutvs.RT5.Aimingtoexpanditsfleetsizeto1kRT6inWuhan,BaiduexpectstoachieveuniteconomicsbreakeveninWuhaninthenext2-3quartersandtomakeprofitin2025.

Whathaschangedrecently?

_

WehaveseensomepositiveregulationchangesrecentlywithBeijingandShanghaitakingtheinitiative.Specifically,BeijingMunicipalBureauofEconomyandInformationTechnologyandrelatedauthoritiesreleasedBeijingRegulationsonAutonomousDrivingVehicles(DraftforComments)onJune30,whichsupportstheuseofautonomous

drivingvehiclesforbuses,taxis,onlinetaxi-hailingservices,carrentalandotherallowedscenarios.Apartfromthis,Shanghaiissuedthefirstbatchoflicensesfor

driverlessintelligentvehicles’pilotoperationinselectroadswithinPudongNewAreafor4companies,amongwhichBaiduisalsoincluded.Webelievethisregulationevolutionindicatesthegovernment’ssupportivestanceforautonomousdrivingtechnologies.

Whatcouldweexpectinto2025E?

TakingWuhanasanexample,weframeouruniteconomics(UE)analysisforBaiduApollowithno.ofdailyorders,averagerevenueperorderasourkeyrevenue

assumptionsandcostitemsdissected,alongsideasensitivityanalysisfordailyprofitpercartodemonstratetheleverageofaveragerevenueperorderandno.ofcarspersafetystaff.Accordingtoourcalculation,UEbreakevenforApolloGoinWuhanwouldbe

feasiblein2025EwithRT6andfewersafetystaffloweringthefixedcost,though

profitcontributionwouldbelimited(c.Rmb9mnannualprofitfor1kRT6,perGSe)

16July20243

GoldmanSachsBInc.(BIDU)

Revenue.Weexpecttheno.ofdailyordersinWuhantoclimbto22in2025E,whichisasimilarlevelvs.traditionalride-hailingservicesastheoperatingareaexpandsand

operatinghoursincrease.Meanwhile,weestimateaveragerevenueperorderatRmb14in2025E,c.40%discountvs.traditionalride-hailingserviceswithRobotaxigradually

scalingbackdiscounts.Assuch,dailyrevenueperRT6isatRmb308for2025E.

Cost.WeexpectthedepreciationyearforRT5andRT6tobe6yearsandassumeno.ofcarspersafetystaffwillgraduallyincreaseto3astechnologyimproves.Forbattery

cost,weestimatebatterychargingcostatRmb1perkWhandannualmileagepercartoreach80kkmwith80%utilizationratebasedonthecurrenttrend.Combinedwith

insuranceandmaintenancecosts,weestimatethedailycostperRT6tobeRmb283for2025E.

Basedonourassumptions,BaiduApolloGowouldachieveUEbreakeveninWuhanin2025E,withdailyprofitperRT6atRmb25andRmb9mnannualprofitfor1kRT6.Thevariablesareavg.pricepertrip,utilizationrateaswellassafetypersonpervehicle.WeexpectarangeofRMB25-300profitpercarperdayifthediscountnarrows.

_

16July20244

GoldmanSachsBInc.(BIDU)

Exhibit1:BaiduApolloGo:UEscenarioanalysisinWuhanCity

BaiduApolloGocouldpotentiallyachieveUEbreakeveninWuhanin2025EwithRmb9mnannualprofitfor1kRT6,perGSe

_

Source:Companydata,GoldmanSachsGlobalInvestmentResearch

16July20245

GoldmanSachsBInc.(BIDU)

Exhibit2:BaiduApolloGo:GSsensitivityanalysisfordailyprofitpercar(Rmb)

Calculationbasedon22dailyorderspercarandassumingothercostsunchanged

Source:Companydataformanufacturingcostpercar,GoldmanSachsGlobalInvestmentResearch

LatestonAds,ErnieAIand2Qestimates

2Q24forecasts:WeexpectBaiducoresalesgrowthat+1%yoyandcoreadj.OPflatyoy,given:1)Adrevenuefacingchallenges(2Q:-2%yoyGSevs.+3%yoyin1Q24),withqoqdecelerationduetostillweakproperty,franchisingamidsoftmacro,though

cushionedbymarginallyimprovingE-commerceadsinJune,alongsideunmonetized

AI-empoweredsearch(accountsforc.11%oftotalqueriesin1Q24);2)AICloud(2Q:+15%GSe,vs.+12%1Q24),sinceweanticipateAI-relatedcloudrevenuetocontinuegrowing,andsometraditionalITspendinghasbeenshiftedtowardsBaiduduringthe

processofenterprisesadoptingBaiduAIinfrastructure;3)Corenon-GAAPOPMto

comeinat24.5%in2Q24E,improvingqoqandstabilizingyoy,thankstoefficiencygainthroughcostdisciplinemeasures,marginimprovementofcloudbusinesstogetherwithloss-narrowingfromautonomousdriving.

Ernieprogress:1)2Cend.BaiduErnieaverageDAUhasseenmomincreasesince

_

March2024andcurrentlyat1.9mn,secondonlytoDoubaoandfollowedbyKimiand

TongyiQianwen.2)2Bend.Averageno.ofdailycallsofErnieLLMhasexceeded

500mn,with150%qoqgrowthin2Q24.Besides,BaiduhasfullyopeneditsERNIE4.0Turboforenterprisescustomers’useduringWAIC2024,withinput/outputpriceaslowasRmb0.03/0.06perktokensrespectively,whichisbeneficialtoenlargingErnie

customerbase.

Wetrimour2024-26Erevenueby-1%/-2%/-3%,netprofitby-2%/-2%/-3%onweakeradrevenueandprofitcontribution.OurSOTP-based12mtargetpricesforBIDU/9888.HKareloweredtoUS$144/HK$141(vs.US$153/HK$150prior),withloweredmultipleforcoresearchat8x24EP/E(vs.9xprior)reflecting

softer-than-expectedadsandcloudat2.5x24EEV/Sales.StayBuyasthestockisnowtradingat8X2024EPE(lowerthanourChinainternetcoverageaverageof14x)withnetcashaccountingfor59%ofmarketcap.

Keyrisks:Slowerrecoveryinmacroandadvertisingspending,higher-than-expectedcompetitionintheadvertising/searchindustry,worse-than-expectedinvestment

spending,delayinmajorautonomousdrivingmilestones.

16July20246

GoldmanSachsBInc.(BIDU)

Exhibit3:Chinanon-eCommerceonlineadvertising

Source:Companydata,GoldmanSachsGlobalInvestmentResearch

Exhibit4:ChinaInternetCloud:Baiduisgrowingatrelativelyquickerpacetopeers

_

Source:Companydata,GoldmanSachsGlobalInvestmentResearch

Exhibit5:Baidu:adclientappDAU(k)trendExhibit6:ErnieDAU(k)trend

BaiduadclientappaverageDAU(k)

100

90

80

70

60

50

40

30

20

10

0

yoy%

100%80%60%40%20%0%

-20%-40%-60%-80%

ErnieaverageDAU(k)

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

mom%

300%250%200%150%100%50%0%

-50%

Source:QuestMobile,DatacompiledbyGoldmanSachsGlobalInvestmentResearchSource:QuestMobile,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

16July20247

GoldmanSachsBInc.(BIDU)

Exhibit7:AIchatbotappscomparsion:monthlyDAU(k)trend

DoubaoErnieKimiTongyiQianwen

4500

4000

3500

3000

2500

2000

1500

1000

500

0

Source:QuestMobile,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

Exhibit8:OurkeyforecastrevisionsforBaidu

Source:Companydata,GoldmanSachsGlobalInvestmentResearch

Exhibit9:Baidu:Summaryoffinancials

_

Source:Companydata,GoldmanSachsGlobalInvestmentResearch

16July20248

GoldmanSachsBInc.(BIDU)

Exhibit10:OurSOTPvaluationisrevisedtoUS$144/HK$141

Source:Companydata,GoldmanSachsGlobalInvestmentResearch

PriceTargetRisksandMethodology-BaiduInc.

WeareBuy-ratedonBaiduwith12-monthSOTP-basedtargetpricesforBIDU/9888.HKofUS$144/HK$141.Weusetarget8XP/Eforcoresearchand2.5XEV/Salesforcloudbusiness.Keyrisksinclude1)slowerrecoveryinmacroandadvertisingspending,2)

higher-than-expectedcompetitionintheadvertising/searchindustry,3)delayofAImonetizationprogress.

_

16July20249

GoldmanSachsBInc.(BIDU)

DisclosureAppendix

RegAC

We,LincolnKong,CFA,RonaldKeung,CFA,SteveQiuandLuqingZhou,herebycertifythatalloftheviewsexpressedinthisreportaccuratelyreflectourpersonalviewsaboutthesubjectcompanyorcompaniesanditsortheirsecurities.Wealsocertifythatnopartofourcompensationwas,isorwillbe,directlyorindirectly,relatedtothespecificrecommendationsorviewsexpressedinthisreport.

Unlessotherwisestated,theindividualslistedonthecoverpageofthisreportareanalystsinGoldmanSachs’GlobalInvestmentResearchdivision.

GSFactorProfile

TheGoldmanSachsFactorProfileprovidesinvestmentcontextforastockbycomparingkeyattributestothemarket(i.e.ourcoverageuniverse)anditssectorpeers.Thefourkeyattributesdepictedare:Growth,FinancialReturns,Multiple(e.g.valuation)andIntegrated(acompositeofGrowth,FinancialReturnsandMultiple).Growth,FinancialReturnsandMultiplearecalculatedbyusingnormalizedranksforspecificmetricsforeachstock.The

normalizedranksforthemetricsarethenaveragedandconvertedintopercentilesfortherelevantattribute.Theprecisecalculationofeachmetricmayvarydependingonthefiscalyear,industryandregion,butthestandardapproachisasfollows:

Growthisbasedonastock’sforward-lookingsalesgrowth,EBITDAgrowthandEPSgrowth(forfinancialstocks,onlyEPSandsalesgrowth),withahigherpercentileindicatingahighergrowthcompany.FinancialReturnsisbasedonastock’sforward-lookingROE,ROCEandCROCI(forfinancial

stocks,onlyROE),withahigherpercentileindicatingacompanywithhigherfinancialreturns.Multipleisbasedonastock’sforward-lookingP/E,P/B,price/dividend(P/D),EV/EBITDA,EV/FCFandEV/DebtAdjustedCashFlow(DACF)(forfinancialstocks,onlyP/E,P/BandP/D),withahigherpercentileindicatingastocktradingatahighermultiple.TheIntegratedpercentileiscalculatedastheaverageoftheGrowthpercentile,FinancialReturns

percentileand(100%-Multiplepercentile).

FinancialReturnsandMultipleusetheGoldmanSachsanalystforecastsatthefiscalyear-endatleastthreequartersinthefuture.Growthusesinputsforthefiscalyearatleastsevenquartersinthefuturecomparedwiththeyearatleastthreequartersinthefuture(onaper-sharebasisforallmetrics).

ForamoredetaileddescriptionofhowwecalculatetheGSFactorProfile,pleasecontactyourGSrepresentative.

M&ARank

Acrossourglobalcoverage,weexaminestocksusinganM&Aframework,consideringbothqualitativefactorsandquantitativefactors(whichmayvaryacrosssectorsandregions)toincorporatethepotentialthatcertaincompaniescouldbeacquired.WethenassignaM&Arankasameansofscoringcompaniesunderourratedcoveragefrom1to3,with1representinghigh(30%-50%)probabilityofthecompanybecominganacquisitiontarget,2

representingmedium(15%-30%)probabilityand3representinglow(0%-15%)probability.Forcompaniesranked1or2,inlinewithourstandarddepartmentalguidelinesweincorporateanM&Acomponentintoourtargetprice.M&Arankof3isconsideredimmaterialandthereforedoesnotfactorintoourpricetarget,andmayormaynotbediscussedinresearch.

Quantum

QuantumisGoldmanSachs’proprietarydatabaseprovidingaccesstodetailedfinancialstatementhistories,forecastsandratios.Itcanbeusedforin-depthanalysisofasinglec