Baidu (BIDU) is China’s top search engine, and this business is piquing investor interest across the globe. The search engine’s latest quarterly results showed healthy growth yet there is a chance deceleration will be a problem in the coming quarter.
Baidu bears abound, yet these skeptics’ uneasiness toward China’s premier search engine might prove to be myopic. Baidu is a popular target of short-sellers, partially because the stock has suffered a precipitous decline since September 2018. Baidu was priced at $230 merely five months ago. Baidu is no longer growing as fast as it did during its prime. Guidance forecasts initially called for a 20% spike in revenue, yet Wall Street analysts have gradually reduced this target down to a mere 14% growth rate.
Take a look at Baidu’s bottom line and you will be troubled. The company’s fourth quarter profit came in at $1.76 per share compared to the prior year’s $2.15 per share. Investment analysts have gradually reduced their earnings expectations, providing Baidu bears with that much more reason to unload their shares or even short the stock. Adding salt to the wound is the fact that Robin Li, Baidu’s CEO started the year by transmitting a letter to workers, advising them China’s economic slowdown will present myriad challenges for the company.
Though the majority of Wall Street analysts downgraded Baidu after learning of the bad news detailed above, one group upgraded the company. OTR Global upped its Baidu rating, insisting industry analysis indicates positive advertising trends that will benefit the search engine giant. Though it is certainly easy to pile the negativity onto Baidu, it must be reinforced that this company’s search engine reigns supreme in China. It does not matter if China’s economic growth is slowing to a decades-low pace; leading search engines are now considered big business, regardless of the state of the economy.
Take a look at Baidu’s chart, and you will see somewhat of a roller coaster. It is clear investors are willing to offload this stock without hesitation then hop right back in to buy the dip. Though there is plenty of short interest in Baidu, the company has surpassed analyst income expectations by at least 12% across each quarter of 2018. Let that statistic marinate in your mind for a moment. Baidu consistently outperforms expectations yet market bears still do not believe in this company for the reasons detailed above. Do not construe the current lack of investor confidence to be a hex Baidu cannot shake. If Baidu has a halfway decent second quarter, it will generate investor interest. All this stock needs is a little bit of momentum to climb higher in the months ahead and possibly ascend through the remainder of the year.
Aside from Baidu’s popular search engine, the company is adding cloud services for an additional revenue stream. The company has also emerged as a power broker in the artificial intelligence arena. Baidu has more than 140 million customers using its DuerOS voice operating system. This is significant as it is quite the hike from the mere 100 million users from August. Baidu’s strategic position as a leader in search systems and voice-based operating systems makes it likely the candidate will reap the rewards from the seemingly ubiquitous Internet of Things (IoT) tech. In fact, the group’s Apollo autonomous driving technology is already used by taxis as well as road solutions in the Changsha municipality.
Baidu’s masterminds are also working on smart-city projects that will make use of AI in new and creative ways. The company’s partnership with China’s government on autonomous vehicle and smart-city projects will likely become a legitimate revenue-driver in due time. In fact, the aforementioned Apollo platform is now the operating system of the country’s autonomous automobile projects. If Baidu executives play their cards right, the company will make a bundle of money as Chinese leaders insist on ramping up their smart-city technologies and AI.
So, is Baidu worth a shot for investors?
Yes. Baidu has plenty of room to grow. Thankfully, this growth is priced fairly cheaply at the moment. The company’s earnings performance was fairly impressive throughout 2018, primarily due to solid earnings stemming from its primary advertising business. Take a look at the analyst estimates, and you will be tempted to load up on Baidu at its current price. The experts insist Baidu will grow at a yearly rate of 18% across at least the next half-decade. If this prediction holds true, it is fantastic news for investors as the business currently trades at an earnings multiple that has hit a historical low point.
As long as Baidu’s investments in the cloud and artificial intelligence fuel company growth, it can be argued the stock is priced fairly low at the moment. Add Baidu to your portfolio, check in on it every couple months, and you just might make a bundle of money in the long run.