Can Baidu End 2019 On A Strong Note?

Baidu (NASDAQ: BIDU) is scheduled to report its fiscal fourth quarter results on Thursday, February 6.

For full-year 2019, Trefis estimates that the company will report:

• Revenues of $15.2 billion, reflecting 2% y-o-y growth, primarily driven by small growth in Baidu’s Core and iQIYI revenues. Our revenue forecast is slightly above the consensus estimate of $15.0 billion.
• EPS figure will likely be $5.85, due to marginally higher revenues, and lower share count, partially offset by modest growth in expenses, as compared to the previous year. Our EPS figure forecast is higher than the consensus estimate of $5.45.

Our forecast indicates that Baidu’s valuation is $137 a share, which is above the current market price of around $124. Look at our interactive dashboard analysis on Baidu’s pre-earnings: How Will Baidu Fare in Q4? for more details.

(1) Revenues expected to be slightly above consensus estimates

Trefis estimates Baidu’s 2019 revenues to be $15.2 billion, slightly above the consensus estimate of $15.0 billion. The company’s revenues are expected to increase marginally to $15.2 billion in 2019.

Baidu’s core business mostly constitutes an online marketplace that introduces internet search users to customers, who pay Baidu a fee based on click-throughs for priority placement of their links in the search results. This segment is expected to contribute $11.4 billion to Baidu’s 2019 revenues, making up 75% of Baidu’s $15.2 billion in revenues for 2019. 

Trefis Estimate $15.2 Bil vs Consensus $15.0 Bil [Surprise ($0.20) Bil]

Notably, Baidu would likely add around $700 million in incremental revenues over 2019-2020, enabling it to touch $16 billion by 2020.

(2) EPS likely to beat consensus estimates

Baidu’s 2019 earnings per share (EPS) expected to be $5.85 per Trefis analysis, 7% higher than the consensus estimate of $5.45 per share. The company’s EPS is expected to decrease 50% from $11.40 in 2018 to $5.85 in 2019, likely due to an expected increase in Total Expenses by 21%. The expense figure includes preferred dividends and other minor expenses.

As we forecast Baidu’s Revenues to grow at a slower rate than Expenses in 2019 (2% vs. 20.8%), this will result in a 49% decrease in Baidu’s Net Income Margin figure from 27.0% in 2018 to 13.5% in 2019 as detailed in the chart below.

Trefis Estimate EPS $5.85 vs Consensus $5.45 [Surprise $0.40]

(3) Stock price estimate ~11% higher than the market price

Trefis forecast for Baidu’s 2019 earnings, as well as P/E multiple, are higher than the market expectations, working out to a fair value of $137 for Baidu’s stock, which is roughly 11% higher than the current market price of around $124. A trailing P/E multiple of 23.5x looks appropriate for Baidu’s stock, which is slightly higher than the current implied P/E multiple of 22.8x

We use our full cash flow model for Baidu to arrive at a P/E multiple of 23.5x for a price estimate of $137.

Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year

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