What’s Happening With Baidu Stock?

BIDU: Baidu logo

Chinese Internet behemoth Baidu’s stock (NASDAQ:BIDU) has declined by about 6% year-to-date and remains down by 58% from its early 2021 highs., trading at levels of around $140 per share currently. However, their stock has outperformed the broader Nasdaq-100, which remains down by about 17% year-to-date. Baidu has been weighed down by a couple of factors. Firstly, Baidu’s advertising business is seeing a slowdown due to weaker economic growth in China and Covid-19-related lockdowns in multiple regions. Over Q1 2022, the company saw revenue from its online marketing services decline by 6.5% year-over-year and this trend is likely to have continued into Q2 as well. Separately, the U.S. has increased pressure on Chinese companies to open up their audit reports – which they are currently barred from sharing by the Chinese government – or potentially face delisting. This has also created an overhang over stocks such as Baidu. That said, Baidu is also making a lot of progress with its other businesses excluding advertising. Over the last quarter, sales from the cloud business rose 45% year over year, with non-ad revenues overall rising 35%.  Baidu is also making solid progress with its AI developments such as autonomous driving. Last week, the company became the first robo taxi operator in China to receive permits for offering rides without any human driver inside the vehicles in two Chinese cities.

So is Baidu stock currently a buy? Following the sell-off, Baidu stock trades at just about 18x consensus 2022 earnings and about 15x consensus 2023 earnings. This is well below the near 40x multiple the company traded at in early 2021.  Moreover, Baidu had a massive net cash position of close to $18 billion as of the end of Q1 2022, accounting for over a third of the current market cap. This means that the company’s 2023 P/E multiple, ex-cash would stand at a mere 9.5x, making the stock an even better value. Although Baidu’s growth is likely to remain muted this year due to the slowdown in the ad market, things should pick up from next year with consensus estimates pointing to over 14% growth. China is also looking to stimulate its economy by cutting key lending rates, unlike most other large economies globally which are tightening their monetary policy. This could potentially help tech stocks such as Baidu. We value Baidu stock at about $200 per share, which is considerably ahead of the current market price. We will be revisiting our forecasts for Baidu following the company’s Q2 earnings, which are due by the end of August. See our analysis on Baidu Revenue and Baidu Valuation for more details on how the company’s revenues are trending and how its valuation compares with peers.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Aug 2022
MTD [1]
YTD [1]
Total [2]
 BIDU Return 2% -6% -15%
 S&P 500 Return 4% -10% 92%
 Trefis Multi-Strategy Portfolio 8% -7% 268%
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[1] Month-to-date and year-to-date as of 8/16/2022
[2] Cumulative total returns since the end of 2016

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