Baidu’s share price bounces back ahead of earnings

Despite a slow start to 2020 and a fairly flat performance for most of the year, Baidu’s [BIDU] share price has soared in recent months. It recently reached an all-time high of $319.00 during intraday trading on 12 February, before closing at $313.00 — up 127.6% over the past 12 months.

This marks an incredible turnaround from spring 2020. On 18 March, Baidu’s share price fell to $83.62 on the stock’s worst day of trading — its lowest close since 2013.

Over the following months, Baidu’s share price had a lacklustre performance and didn’t return to the green until 4 November, when it closed at $140.31. This marked an 11% year-to-date increase, suggesting investors were cautiously bullish on the stock ahead of third-quarter earnings.

Baidu’s share price was quick to fall again before making a tremendous comeback, and it went on to finish 2020 up 71.1% year-to-date when it closed at $216.24 on 31 December — the stock’s best close since 2018.

Since then, the stock has skyrocketed even higher, but how will Baidu’s share price react when the company announces its fourth quarter results on 17 February?

The Baidu spike

When Baidu released its third-quarter results on 16 November, it posted earnings of $3.00 per American depositary share (ADS). This beat the Zacks Consensus Estimate of $1.85 by 62.2% and marked a year-over-year growth of 70.5%.

Meanwhile, Baidu’s revenue for its third-quarter grew 5.8% year over year to total $4.16bn, beating the Zacks Consensus Estimate of $3.92bn by 6.1%.

Growth was credited to a recovery in the Chinese economy, which in turn contributed to improving Baidu’s advertising revenue, the tech giant’s biggest income stream.

“Our revenue growth turned positive in the third quarter with many advertising verticals turning around, putting Baidu in a good position to further benefit from a recovery in the Chinese economy,” said Robin Li, co-founder and CEO of Baidu. Several times throughout the earnings call, Baidu’s management mentioned looking to grow its non-advertising revenue.

“We now have an opportunity to optimize Baidu's large traffic and vibrant mobile ecosystem with a focus on growing non-advertising revenue,” said Herman Yu, Baidu’s CFO.

After the Q3 results were announced, Baidu’s share price initially fell 10% over a five-day trading period to close at $133.04 on 23 November.

As one of China’s tech giants, Baidu’s performance is a key indicator for thematic ETFs such as the Invesco China Technology ETF [CQQQ], 11.96% of which is made up of Baidu ADS.

The Invesco China Technology ETF was quick to recover from its slump in March and outpaced Baidu for most of the last year — or at least until Baidu’s recent spike. As of close on 12 February, the ETF was up 86.3% over the 52-week period compared to Baidu’s 127.7% rise.

Looking ahead, analysts expect Baidu to produce earnings of $2.51 per share in its upcoming report, which would represent a year-over-year loss of 21.8%. Revenues, on the other hand, are expected to come in at $4.46bn, a 7.5% gain on the year-ago period.

For the full year, the Zacks Consensus Estimate is predicting earnings to reach $9.75 per share and revenue of $15.9bn, which would mark respective gains of 30.4% and 2.5% year-over-year.

How will Baidu diversify its revenue?

Not only did Baidu recently acquire live-streaming platform YY Live, from JOYY [YY], but Yu noted that “enterprise cloud and smart transportation are two huge revenue opportunities ahead of us. Our autonomous driving is also progressing well and our peers are being valued between $5.4bn and $30bn”.

The autonomous-driving sector is proving to be of particular interest to analysts. James Lee, IT manager at Mizuho Securities, said in an interview with CNBC that the company is well-positioned to benefit from China’s ever-improving infrastructure. Lee said that the country plans to build transport systems that support self-driving vehicles in 30 domestic markets.

Ella Ji, analyst at China Renaissance, shared Lee’s sentiment on Baidu’s autonomous driving bid. “Baidu's Apollo autonomous driving technology has hit an inflection point thanks to strong regulatory support from the Chinese government and advances in artificial intelligence,” she noted, according to The Motley Fool.

"Baidu's Apollo autonomous driving technology has hit an inflection point" - Ella Ji, China Renaissance

Considering the recent share price performances of EV manufacturers such as Tesla [TSLA] and Nio [NIO], it’s easy to see why Lee and Ji are bullish on the prospect of Baidu becoming an autonomous vehicle giant.

Baidu's share price vitals, Yahoo Finance, 16 February 2021