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Earnings

Baidu share price: what to expect from Q1 earnings

Baidu [BIDU], China’s largest internet search company, is due to report its Q1 earnings on Monday (18 May), following a tumultuous quarter for many companies worldwide.

Baidu’s share price has fallen around 24% since the beginning of the year to 14 May, experiencing its biggest dip mid-March at the height of the pandemic. In March, the share price saw a decline of more than 15%, compared to January’s 2.2% dip. Its share price has been fairly stable since then considering wider volatility.

 

 

As the stock corrects from a historic coronavirus-related dip, investors and traders are concerned whether companies such as this, which are often heavily reliant on advertising revenues, are able to weather the storm.

 

Stock headwinds

According to CNBC, three-quarters of its revenue is derived from advertising in its core search business, an area many companies are currently struggling with. Indeed, an IPA Bellwether Report for Q1 2020 revealed the strongest decline in marketing budgets since the global financial crisis due to a sudden stop in consumer and business spending. 

In its Q4 earnings, released at the end of February, the Nasdaq-listed company beat analysts’ expectations, as revenue hit RMB28.8bn. It posted earnings of RMB26.54 per share for the quarter.

At the time, analysts polled by Investing.com expected revenue of RMB28.03bn and earnings of RMB15.89 per share, according to Yahoo Finance. It’s share price rose throughout February only to drop in March.

RMB28.03bn

Baidu's expected Q1 revenue

  

The search giant has already issued a warning that its Q1 results are due to dip, giving an estimate of a 5% and 13% decline compared to a year ago, due mainly to coronavirus headwinds.

Herman Yu, Baidu’s CFO said: “The novel coronavirus situation in China is evolving, and business visibility is very limited. Most shops, restaurants and malls across China were closed down, and many remain closed down as we speak, so consequently, the rebound for online marketing after the Chinese new year has been slow this year.”

Baidu’s share price has fallen around 24% since the beginning of the year to 14 May, experiencing its biggest dip mid-March at the height of the pandemic. In March, the stock saw a decline of more than 15%, compared to January’s 2.2% dip. Its share price has been fairly stable since then considering wider volatility.

“The novel coronavirus situation in China is evolving, and business visibility is very limited. Most shops, restaurants and malls across China were closed down, and many remain closed down as we speak, so consequently, the rebound for online marketing after the Chinese new year has been slow this year” - Baidu’s CFO, Herman Yu

 

The company’s results come of the back of its US peer Alphabet’s [GOOGL] earnings announcement in late April. The search giant’s earnings were weaker than some analysts had expected, however, revenue surpassed estimates based on data by Refinitiv, prompting its share price to rally.

 

Diversification

Pressures that Baidu is facing, alongside the coronavirus outbreak, include fierce competition in the market from similar companies like ByteDance and Tencent [TCEHY]. The broadening tech marketplace has hurt its sales in the past. Baidu’s response to a rocky advertising landscape has been to diversify into other areas.

Its Netflix-style video platform business iQiyi [IQ] has seemingly been a success so far, as revenues in that part of the business grew by 35% year-over-year in the fourth quarter. It could be one to watch as the business is squeezed from other directions.

The company’s cloud computing and smart speaker segments will also be key figures to watch as investors wait on whether the company can gain momentum.

Baidu has previously tried to expand into other areas, such as food delivery, however, it streamlined its business in 2018 and sold off food delivery platform Ele.me to rival Alibaba [BABA] in 2018.

 

Market Cap$36.2bn
PE ratio (TTM)8.16
EPS (TTM)12.83
Quarterly Revenue Growth (YoY)6.20%

Baidu share price vitals, Yahoo Finance, 18 May 2020

 

What the Analysts Think

At the end of February, Bernstein analyst David Dai told the Financial Times that the company is in the process of “transitioning from a high-growth technology company to one growing more slowly with larger profits”. Baidu made significant progress in trimming its costs in the fourth quarter so it is expected that this will show up on the books.

The rate at which it can adapt and diversify will be key to its business going forward. Some of the search giant’s biggest clients include online gaming companies, plastic surgery clinics and real estate developers, which now have few incentives to increase advertising spend.

Analysts’ estimates are broadly positive ahead of earnings. Of those polled by MarketScreener, 18 settled on a buy rating, while seven rated it outperform and 10 rated it hold. None of the analysts polled rated it a sell. CNN Business concurs with this, as the consensus rating among 39 analysts they polled give Baidu a buy rating. This has held steady since April.

Disclaimer Past performance is not a reliable indicator of future results.

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