Chinese Internet behemoth Baidu (NASDAQ:BIDU) posted a better-than-expected set of Q3 2022 results, despite the resurgence of Covid-19 cases and lockdowns in China. Total revenue rose 2% year-over-year to 32.54 billion yuan ($4.55 billion), with adjusted net income rising by about 15% to 5.89 billion yuan ($828 million). Although digital advertising sales were down by about 4% versus last year, the business saw a sequential improvement as the Chinese economy saw a marginal improvement. Baidu’s artificial intelligence and cloud computing operations are also gaining traction. Revenues from non-online marketing, which include the company’s cloud and AI initiatives, were up 25% year over year, marking an acceleration from the 22% annual growth in the second quarter. Baidu’s autonomous driving business is also expanding rapidly, with the company delivering 474,000 rides in its driverless taxi service, marking an increase of about 65% versus Q2. Baidu’s adjusted operating margins also trended higher to about 27% from 19% in the year-ago quarter, driven by better cost management.
While Baidu stock saw little movement following the earnings release, it remains down by over 35% year-to-date. However, at current levels of about $95 per share, we think that the stock looks very attractive. Following the sell-off, Baidu stock trades at just about 12x consensus 2022 earnings and about 10x consensus 2023 earnings. This is well below the nearly 40x multiple the company traded at around February 2021. Moreover, Baidu had a sizable net cash position of roughly $14 billion as of the end of Q3 2022, accounting for over 40% of the company’s current market cap. This means that the company’s 2023 P/E multiple, ex-cash would stand at a mere 6x, 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 around 12% growth. We value Baidu stock at about $145 per share, which is about 55% ahead of the current market price. See our analysis of Baidu Revenue and Baidu Valuation for more details on how the company’s revenues are trending and how its valuation compares with peers.
|S&P 500 Return||3%||-16%||79%|
|Trefis Multi-Strategy Portfolio||3%||-20%||217%|
 Month-to-date and year-to-date as of 11/23/2022
 Cumulative total returns since the end of 2016