Despite boasting a strong balance sheet, tons of cash flow generated each quarter, the market has not valued Baidu (BIDU) in the same realm of its American counterparts such as Google (GOOG, GOOGL).
Baidu shares have lost roughly 40% of its value over the last three years. But now might be a good time to bet on a recovery. The Chinese tech giant is set to report second quarter fiscal 2020 earnings results after the closing bell Thursday. Baidu, as with several Chinese stocks, has been under consistent scrutiny as U.S. leadership is looking to restrict Chinese companies from listing on U.S. stock exchanges without reform. There is also concern over the escalating U.S. and China tech war.
All of this comes as Baidu has had to deal with the coronavirus outbreak which has disrupted its business, particularly at a time when the company is facing tougher competition in digital ads. That said, opportunistic investors have begun to be attracted to the stock, evidenced by the 25% rise in the stock over the past three months, compared to the14% rise in the S&P 500 index during that span. For the shares to keep rising, investors will want some assurance that Baidu can withstand the onslaught of uncertainty.
In the three months that ended June, Wall Street expects the Beijing-based company to earn $1.37 per share on revenue of $3.7 billion. This compares to the year-ago quarter when earnings came to $1.43 per share on revenue of $3.76 billion. For the full year, ending December, earnings are expected to decline 12% year over year to $6.39, while full-year revenue of $15.5 billion would rise about 1% year over year.
The company generated roughly 60% of its revenue from its online marketing segment in the most-recent quarter, while the remaining portion of revenues is accounted from its rom its "other" segment, which includes the video streaming platform iQIYI (IQ), in which Baidu owns a 48% stake. These collective businesses serve as growth catalysts for Baidu, which has increased investments in its core search business, cloud, artificial intelligence and autonomous driving.
In the first quarter, while the company beat on both the top and bottom lines, posting revenue of $3.18 billion, revenue was down 7% year over year and down 22% from the fourth quarter. Notably, Q1 net income surged 219% year over year. The management cited pandemic-related headwinds for the revenue decline, which were offset by stringent cost controls and a focus on higher-margin businesses. There were noticeable improvements in its business as the management outlined ways to benefit from the re-opening of the Chinese economy.
Just as impressive, the company reported its Baidu App saw a 28% increase in daily active users to 222 million users, while in-app search queries rose 45%. On Thursday the Street will want to know how the coronavirus has impacted these businesses, especially Baidu’s online marketing segment which has suffered year-over-year revenue declines in four straight quarters. While the stock looks attractive at current levels, investors will want to see if Baidu can build on these positive metrics and guide confidently.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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