Baidu’s share price: What to expect in Q3 earnings

Baidu’s [BIDU] share price is up 18.81% over the past three months, ahead of both Alibaba [BABA] (+2.71%) and Tencent [TCEHY] (+17.87%). That’s quite a turnaround for a Chinese tech stock that has traditionally lagged behind its peers. Baidu’s results come at a time of huge change for Chinese companies — specifically the country’s burgeoning tech giants. As Beijing has exerted more control through recent anti-monopoly legislation, Baidu’s share price and other Chinese tech stocks saw choppy trading last week. 

This will no doubt be on investors' minds heading into Baidu’s third quarter results. Leaving aside the political noise, analysts will be looking for a resurgence in Baidu’s online advertising business after it stumbled in the second quarter. 

When is Baidu reporting Q3 earnings?

16 November

What could move Baidu’s share price in Q3?

Baidu’s second quarter results saw revenue come in at CNY26bn, a 1% dip from the same period last year but topping analysts’ forecasts. Online marketing revenue fell 8% year-on-year, coming in at CNY17.7bn. Revenue from video streaming service iQIYI, which came in at CNY 7.4bn ($1.05bn), was up 4% from the same period last year.

The strain from the pandemic could spill over into the third quarter. For the quarter, Baidu is expecting revenue to come in between CNY26.3bn ($3.7bn) and CNY28.7bn ($4.1bn) — the lower end of this range represents a 6% year-on-year decline, while the top end would see a 2% increase. While these forecasts represent a decline year-on-year, they also show that, quarter-on-quarter, things are picking up.

On Wall Street, expectations are that Baidu will post earnings of $2.07 per share, up from the $1.47 posted in the same period last year. Revenue is forecast at $4.15bn, a slight 3.4% increase on last year’s $4.01bn haul.

Is a beat on the cards?

Well, Baidu has topped Wall Street expectations four quarters in a row. Last quarter saw earnings come in at $2.18 a share, well ahead of the forecasted $1.42 a share. Still, that wasn’t enough to stop a post-earnings slide as iQIYI disclosed it was being probed by the US Securities and Exchange Commission.

For Baidu’s share price to avoid a similar fate this time, it will need to show advertising revenues are on the mend, along with avoiding any further political headaches. 

Why should investors care about Baidu’s share price?

Marketing revenue picks up

Barclays’ analyst Gregory Zhao upgraded his rating on the stock from equal weight to overweight. According to Zhao, Baidu’s marketing revenues, which make up the bulk of its core revenue, should rally in line with a recovery in the online advertising industry. Last quarter, Baidu’s online advertising revenue fell 28% as the pandemic forced marketers to slash budgets. 

“Thanks to the consistent efforts on building up the ‘super app’ ecosystem in the Baidu Mobile app, the 2Q20 in-app search queries and revenues grew 28% and double digits y/y, respectively. And the strategic pulling-back from the low margin TAC revenues helps enhance Baidu Core’s margin expansion,” Zhao said.

"Thanks to the consistent efforts on building up the ‘super app’ ecosystem in the Baidu Mobile app, the 2Q20 in-app search queries and revenues grew 28% and double digits y/y, respectively. And the strategic pulling-back from the low margin TAC revenues helps enhance Baidu Core’s margin expansion" - Gregory Zhao, analyst at Barclays

China cracks down on the internet

One concern for investors interested in Baidu’s share price is China’s communist party stepping up efforts to curtail the country’s burgeoning tech sector. At the start of November, Beijing announced regulations to stop monopolistic practices, triggering a frenzied selloff in Chinese equities. The regulation reflects Beijing’s concerns that the tech sector has too much influence and economic power. Measures include restricting targeted advertising of individual customers. As Baidu is China’s biggest online search provider — and derives the majority of its income from advertising — the new regulations could weigh on revenue. 

Yet, since the regulations came into effect, Baidu’s share price has proven resilient. The stock closed flat last week, which was better than Chinese tech rivals Alibaba and Tencent, which saw respective 10.22% and 2.67% declines.

Where next for Baidu’s share price?

Among the analysts tracking the stock on Yahoo Finance, Baidu’s share price has an average $151.56 target. Hitting this would represent a 4.3% upside on the current price. Of the 33 analysts offering ratings, eight rate the stock a Strong Buy, and 11 rate it a Buy.

Among the bulls is Oppenheimer analyst Jason Helfstein, who has a $155 target on Baidu’s share price to go along with his Buy rating. Barclays is even more bullish, with a $170 price target on Baidu, which would see a 17.18% upside on the current share price. KeyCorp has a $177 price target — hitting this would see a substantial 22% upside on the current share price (as of 13 November’s close).

Baidu's share price vitals, Yahoo Finance, 16 November 2020