What To Watch For In Baidu’s Q1 Earnings

by Trefis Team
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Baidu (NASDAQ:BIDU) reports its Q1 results on May 16. The company had beat consensus expectations on revenue and EPS in Q4. We will be looking for commentary around progress in the management’s aim of increasing the amount of artificial intelligence component in its products, as this should allow the company to offer services that are more aligned with consumer preferences while also reducing costs. Per Trefis estimates, Baidu’s shares have a fair value of $189 per share. Our interactive dashboard about Baidu’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. Also, you can see more Trefis technology company data here.

A Quick Look At Baidu’s Revenue Sources

Baidu makes money through advertising and content subscription services (similar to Netflix). The company also has other developing avenues of revenue generation such as cloud and autonomous driving. There are two main segments of Baidu’s revenue ($15 billion in 2018).

  • Baidu Core (fiscal 2018 revenue of $11 billion, 76% of total revenue): Segment revenues are derived from advertising income and related services for merchants. Baidu continues to be the largest search engine in China with a market share of roughly 70%.
  • iQiyi (fiscal 2018 revenue of $4 billion, 24% of total revenue): Segment revenues are derived from subscription of streaming and content marketing services. iQiyi is also known as the Netflix of China.

Revenue trends and fiscal 2019 expectations

  • Baidu added $5 billion in total revenue from 2016 to 2018 (CAGR of 21%)
  • Revenue growth was driven by Baidu Core, adding $3 billion in revenues over the same period at a CAGR of 15%. We expect revenues for the segment to $12 billion (+7% y-o-y) in 2019.
  • For iQiyi, revenue growth has been higher at a CAGR of 49% with the division adding $2 billion in revenues the last two years. We expect revenues for the segment to grow to $5 billion (+28% y-o-y) in 2019.

We forecast Baidu’s EPS figure for full-year 2019 to be $7.42. Taken together with our forward P/E multiple of 26x for the company, this works out to a $189 per share price estimate for the company’s stock, which is about 25% above the the current market price. A bulk of the difference can be attributed to the sell-off in Chinese company stock over recent weeks due to heightened fears of a full-blown U.S.-China trade war.

Do not agree with our forecast? Create your own price forecast for Baidu by changing the base inputs (blue dots) on our interactive dashboard.

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