Chronicle Journal: Finance

Baidu: Should You Buy the Dip?

The pandemic has created huge demand for the Chinese search engine giant Baidu’s (BIDU) diversified online services and smart technological solutions as stay-at-home orders have pushed people to use the internet more than ever.

Baidu, Inc. (BIDU) is a global internet service provider, operating through two segments — Baidu Core and iQIYI. With its non-advertising and AI business booming in the third quarter, BIDU is in a good position to benefit from the fast recovering Chinese economy. The massive reach of the Baidu App along with other products in the company's portfolio is helping it attract new users.

As the Chinese online advertising industry is gradually restoring its momentum with the economic recovery, B

IDU’s marketing division is expected to outshine. Also, the growing popularity of smart technology and AI solutions puts the company in a favorable position as its AI open platform built on Baidu Cloud offers over 270 AI capabilities, attracting a developer community of over 2 million. BIDU has gained just 5.3% year-to-date, but it can witness a substantial upside with the potential monetization of its growing membership, vibrant mobile ecosystem and live streaming services. This, combined with several other factors, has helped it earn a “Buy” rating in our proprietary rating system.

Here’s how our proprietary POWR Ratings system evaluates BIDU:

Trade Grade: A

BIDU is currently trading above its 50-day and 200-day moving averages of $132.08 and $118.56, respectively, indicating that the stock is in an uptrend. The stock gained 8.6%, over the past three months, reflecting short-term bullishness.

BIDU’s revenue increased 8% sequentially to $4.16 billion in the third quarter ended September 2020. The increase in revenue is primarily attributable to growth in the cloud services and the iQIYI subscriber revenue. Operating income grew 161% year-over-year to $907 million, while adjusted EBITDA rose 77% year-over-year to $1.34 billion in the third quarter.

On November 17th, BIDU announced that it will acquire JOYY’s live streaming business in China. This transaction will allow BIDU to grow its user base, enhance its ecosystem’s monetization capabilities and boost its business growth.

BIDU recently launched its new flagship Xiaodu Smart Display X10 and XiaoduPods smart earbuds. These affordably priced products will help the company attract a significant number of new customers.

Buy & Hold Grade: B

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, BIDU is well positioned. The stock is currently trading just 11.1% below its 52-week high of $151.18, which it hit on November 16th.

The company’s net revenue grew at a CAGR of 9.4% over the past three years, while net income increased at a CAGR of 9% over this period. Also, BIDU’s EPS increased at a CAGR of 10.5% over the past three years. This can be attributed to the company’s massive active user base, and significant improvement in its cloud services and the online marketing services.

Peer Grade: A

BIDU is currently ranked #17 out of 115 stocks in the China group. Other popular stocks in this industry are China Biologic Products Holdings, Inc. (CBPO), Group Limited (TCOM) and iQIYI, Inc. (IQ).

IQ, CBPO and TCOM gained 4.9%, 1.8% and 0.4% year-to-date, respectively. This compares to BIDU’s 5.3% returns over this period.

Industry Rank: B

The China group is ranked #42 out of the 123 industries. China has demonstrated impressive recovery at a time when most economies are in recession. The Chinese economy has bounced back from the virus slump, resuming all business operations after successfully flattening the curve, while most economies are experiencing a second wave of infections. Hence, stocks in this group present a huge opportunity for investors across the globe.

Overall POWR Rating: B (Buy)

BIDU is rated a “Buy” due to its impressive financials, short-and-long-term bullishness, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

BIDU is well positioned to soar in the upcoming months despite gaining 5.3% year-to-date, as consumers are spending more time online to virtually connect with others and stream entertainment, amid a potential second wave enforcing social distancing restrictions. This demand could significantly increase BIDU’s daily active users.

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BIDU shares were trading at $135.30 per share on Wednesday afternoon, up $0.94 (+0.70%). Year-to-date, BIDU has gained 7.04%, versus a 14.32% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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