Baidu (BIDU) shares have been under pressure, falling more than 40% over the past few weeks during the recent tech selloff. The company also suffered when a hedge fund with a large position was forced to unload shares due to margin call. Investors who have been on the sidelines should see this as a solid buying opportunity.
The Chinese tech giant is set to report first quarter fiscal 2021 earnings results after the closing bell Wednesday. With consecutive quarters of strong earnings that has yielded tons of cash flow, Baidu is ready to put its cash to work, promising to boost its investments by some 30% annually over the next several years. Often referred to as the “Google of China,” the company many initiatives include a stand-alone artificial intelligence (AI) semiconductor capabilities, as well as streaming and autonomous vehicles.
With more than 13 years in research and developing its vehicle technology, Baidu has established itself as one of China’s leading players in autonomous driving with its mobility-as-a-service (MaaS) platform. Reports suggest Baidu, which has amassed some forty autonomous vehicles in its fleet, will allow customers to order transportation services on demand by leveraging various robotaxis and robobuses. But can Baidu’s autonomous driving efforts produce enough revenue to enable it to compete with other established leaders?
Elsewhere, in light of the recent chip shortage, the company is reportedly planning to leverage its existing AI-based platform-as-a-service capabilities to sell chips to customers in various industries including banks and automakers to help them manage applications without having to build their own platforms. Baidu’s existing businesses, namely its marketing division, has rebounded strongly due to online advertising. Investors on Tuesday will want to know if the rebound is sustainable. This, among others, will be an important topic analysts during the conference call.
In the three months that ended March, Wall Street expects the Beijing-based company to earn $1.66 per share on revenue of $4.22 billion. This compares to the year-ago quarter when earnings came to $1.26 per share on revenue of $3.22 billion. For the full year, ending in January, earnings are expected to rise 3.6% year over year to $10.18, while full-year revenue of $19.64 billion would rise about 19.4% year over year.
The recent decline in Baidu coincides with the selloff in high-growth stocks in favor of value names. But as the rotation into value fades, Baidu shares will recover. The upbeat full-year revenue forecast for close to 20% growth is nonetheless a welcome sign that analysts believe the company has overcome the disruption in its digital ad business which was brought on by the coronavirus outbreak. Baidu generates roughly 60% of its revenue from its online marketing.
In the fourth quarter Baidu reported better-than-expected quarterly earnings and revenue, driven by increased ad spending on its internet search platform which rebounded strongly from the pandemic-induced lockdowns. Fourth quarter revenues rose 5%, reversing a downtrend. Q4 adjusted EPS of $3.08 beat estimates by 49 cents. AI solutions revenue rose 67% year over year, reaching an annualized run rate of $2 billion.
This is a notable growth trend in the company’s core non-advertising revenue which rose strongly in consecutive quarters. When factoring the company’s decline in content costs, traffic acquisition costs and costs of good sold, Baidu is executing and moving towards the future with its collective businesses. On Tuesday investors will want to see whether these positive metrics can continue.
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