Andreas IsmarShares in the Chinese search engine giant have been showing signs of revival in recent weeks. Will the momentum persist?
Baidu shares have fallen from this year’s peak of nearly $340 in February to around $137 last month. Currently (8 September), the stock is hovering around $163, rising nearly 19% in three weeks.
Like other Chinese companies, Beijing’s crackdown on technology companies has hurt Baidu shares, while COVID flare ups in the country overshadowed Baidu’s push to new sectors, such as artificial intelligence and autonomous driving.
In this article, we take a look at Baidu’s fundamentals, recent news and analysts forecasts.
Robust revenue growth
Baidu reported revenue growth of 20% year-on-year in the three months ending June, bringing its top line to CNY31.35bn ($4.85bn), the second straight quarter of double digit growth, following a 25% increase in April-March period.
On a sequential basis, revenue rose 11%. Operating income amounted to CNY3.46bn ($536m) in the second quarter, a 24% jump from the previous quarter.
Still, the company booked a net loss of CNY583m ($90m) due to mark-to-market adjustment for its minority stake in live streaming apps producer Kuaishou Technology, whose stock price sank 28% over the quarter.
Business segments
Dubbed the ‘Chinese Google’, Baidu commands over 70% of the search engine market in China. With Beijing’s ban on Google, Baidu is well entrenched in the world’s second largest economy.
Yet, to view the company as search-engine only is a huge misnomer, as the company has been expanding to content, smart transport and cloud computing. Main segments of Baidu’s businesses include:
Baidu Core
Baidu clubs its search engine, AI cloud, and transport businesses under ‘Baidu Core’. In the second quarter, the division booked a 27% year-on-year increase to CNY24bn ($3.72 bn) – more than three quarters of overall revenue.
Baidu Core is further broken down into online marketing revenue, which grew 18% on-year to CNY19bn ($2.95bn), or around 60% of total revenue, thanks to its massive search engine market share.
The remaining CNY5bn ($771m) revenue was derived from ‘non-online marketing’, such as AI cloud and other services. Although they made up less than a fifth of total revenue, the segment surged 80% on-year.
iQIYI content
Baidu’s video streaming affiliate, iQIYI, contributed CNY7.6bn ($1.18bn) of revenue in the second quarter. The ‘Netflix of China’ saw its advertising revenue up 15% with subscribers growing to over 106 million at the end of June.
The jump in the non-online marketing segment “was quite impressive compared with a slowing trend for bigger players like AliCloud,” said Nomura analysts Jialong Shi and Thomas Shen.
Baidu stock news and analysis
Growth initiatives
In spite of government regulation affecting its search engine business, Baidu is facing rising domestic competition, with the likes of Tencent’s WeChat and ByteDance’s TikTok clawing into shopping online advertisements.
Tencent has also received government’s approval for acquiring Sogou, the second largest search engine in China, setting the tone for even fiercer competition in the future.
To lower its reliance on search engine-related marketing revenue, Baidu in November announced the $3.6bn acquisition of domestic, video-based entertainment live streaming product YY Live from JOYY.
The plan, however, has yet to receive regulatory approval, meaning that a fresh revenue generator will not occur anytime soon.
Earlier this year, Baidu's autonomous driving unit, Apollo, launched paid ride-hailing robotaxi services. As of June-end, the service has been expanded to four cities and accumulated 47 thousand trips, up 200% on-quarter.
The ride-hailing service is part of Baidu’s real-life testing for self-driving taxis, currently using the fifth generation of such technology. The latest model is 60% more efficient than the prior generation, according to the company.
Artificial intelligence
In the cloud computing sector, Baidu is trying to make headway into a market dominated by Alibaba and Huawei, choosing to focus on AI-based cloud services as its unique proposition.
Its PaddlePaddle open source deep learning platform, which allows developers to create programmes for a wide range of industries, serves 130,000 businesses with 3.6 million community members.
It also developed Baidu AI solutions for the water treatment plant in Fujian’s Quanzhou, for remote monitoring equipment malfunction and adjusting water pressure based on predictive use.
Baidu has also partnered with automaker Geely to use artificial intelligence to optimise manufacturing process as well as providing cloud services to its suppliers and customers. Baidu operating system ‘DuerOS’ can be used for smart home appliances and integrated into cars for navigation, information and entertainment assistance.
Reaching out to youth and elderly
Baidu incorporates AI technology with consumer electronics, such as speakers and display monitors. Under the Xiaodu brand, its smart display ranked first in terms of global sales by the end of March, while its smart speaker topped China’s market share.
The smart display can cater to the needs of the elderly, enabling constant connection with family members and being able to contact medical help when an emergency arises.
In May, it launched Xiaodu’s Tiantian T10, combining a smart display with karaoke functions for private entertainment.
Mobile app
Baidu’s mobile ecosystem showed a rising trajectory, with active monthly users rising to 580 million by June end, up 9% on-year, and compared with 558 million at the end of March. Daily logged in users reached 77% in June against 75% in March.
The rising users of Baidu’s mobile app has helped improve revenue on online marketing because it creates an extra leverage for the company’s Managed Page service, which maintains a company’s online presence throughout Baidu’s ecosystem.
Baidu confident on expansion
Baidu is optimistic on the prospects of its expansion beyond search engines, holding the view that the Chinese government will support such initiatives.
Chief Financial Officer Herman Yu said that the overall direction of China’s development plan is pointing towards the government's push for new growth sectors.
Unlike other Chinese tech-giants like Alibaba and Tencent, which received harsh government penalties on grounds of antitrust and data privacy, Baidu has come out relatively unscathed.
Baidu stock forecast
Baidu projected third quarter revenue between CNY30.6bn ($4.7bn) and CNY33.5bn ($5.2bn), representing growth between 8% and 19% on-year – a wide estimate range as the COVID situation in China “is evolving and business visibility is limited”.
The company’s guidance was at the lower end of analysts’ estimate of CNY33.1bn.
Eighteen out of 21 analysts recommend ‘buy’ for Baidu shares, with the stock price expected to reach $293 over the next 12 months, marking nearly 80% upside potential, according to Baidu stock price prediction by MarketBeat.
Algorithm-based forecast service Gov Capital is also bullish in its Baidu share price forecast.
It estimated Baidu’s price to rise to nearly $298 in the coming year, representing an 83% increase potential. According to its longer-term BIDU stock forecast for 2021-2025, the stock can hit $1,110 by the end of 2025.
Nomura analysts maintained their neutral stance on Baidu, but lowered their BIDU share price target from $217 to $187.
Note that analysts’ predictions can be wrong. Many elements can affect the asset’s price, including the company’s financial performance in the coming years and the regulatory environment in China. We encourage traders to perform your own due diligence before making any investment decision.
How and where to trade BIDU shares
One way to trade BIDU shares is with contracts for difference (CFDs) on Capital.com. CFD trading allows you to speculate on shares without having to own the underlying asset.
CFDs enable you to try to profit from both positive and negative price fluctuations. If you expect the share price to rise, you can open a long position. If you think it will fall, you can go short.
Mind that CFD is a leveraged product designed to maximise gains. You should be aware of the high risk involved as leverage also magnifies losses if the asset’s price moves against you.
Make sure you understand how CFDs work and do your own research before you start trading. Never invest money you cannot afford to lose. As always, you should be aware that past price performance is no guarantee of future returns.
