Baidu is a web services business based in China incorporated back in 2000. It became the first Chinese business to be listed on the NASDAQ-100 index, and has since grown into one of the world’s largest Internet companies.
The company offers an array of web-based services, highlighted by a popular Chinese search engine. All in all, the company offers nearly 60 search and community services. Baidu’s stock is on fire, currently priced around $226 and showing no signs of slowing down.
Part of the reason why Baidu investors are scooping up the company’s stock is the extent of its offerings. This isn’t any old search engine provider. The company helps web sleuths find web pages as well as images, videos, music, movies and beyond.
The company’s advertising product, Baidu Tuiguang, operates in the mold of Google’s Adwords and Adsense. This pay-per-click advertising platform lets advertisers place their ads in search results as well as other web pages that are within the Baidu Union. The only noticeable flaw to Baidu’s business model is the fact that its administrative tools are limited to the Chinese language. However, the company has enlisted a third-party to implement a tool with an English interface to ameliorate language challenges in the context of advertising.
Baidu’s Revenue
Baidu recently established a new 52-week high after exceeding the street’s earnings expectations. The Chinese search engine company pulled in a revenue in excess of $3 billion for the second quarter. This is nearly 15 percent higher than the revenue results for the same quarter in 2016, and the first time Baidu has enjoyed revenue growth in double-digits in the past year.
The search engine venture doubled its adjusted net income to $2.36 per share. This is the company’s best adjusted net income since late 2015. The metrics show that Baidu is now a growth stock. The company is no longer neglecting margins in favor of testing the waters in new realms of tech.
Regulators forced the search engine provider and its rivals to tone down the hyper-aggressive display strategies used in sponsored listings for medical companies. The restrictions have been in place for a year, yet Baidu has maintained its stride quite nicely. A whopping 86 percent of the company’s revenue is attributable to online marketing.
Though the company’s online marketing clients have dropped about 20 percent across the past year, this is attributable to Baidu’s decision to decrease its client base in order to improve its platform quality. This decision might seem a bit questionable on the surface, but it worked. Baidu’s online marketing revenue jumped 5.6 percent after reducing its client base. The company’s typical customer is spending nearly one-third more than they did during the year prior.
Renewed Commitment to AI
Baidu is poised to implement artificial intelligence (AI) in its core search and mobile products. The company has nearly $14 billion to spend when its short-term investments and cash are combined.
Wall Street experts agree Baidu’s focus on AI has the potential to dramatically catalyze growth. Macquarie’s Wendy Huang recently shifted her stance on Baidu from neutral to outperform. Huang is so confident that she revised her Baidu price target from $190 to $252. Cantor Fitzgerald’s Naoshi Nema double-upgraded the stock, shifting from underweight to overweight. His price target has been revised from $156 to a whopping $260.
Baidu is a Buy
Do not underestimate Baidu as a one-trick pony. Baidu’s core business is search engines yet the same could also be said of Google. The power players of search engine advertising are in the ideal position to benefit from the web’s rapid expansion and ever-growing ubiquity.
Baidu is in the cat bird’s seat. Advertisers are lining up in droves to participate in Baidu’s online advertising platform. Look for the company to accept more advertisers as they perfect their platform.
Though it can be argued that Baidu is committing the cardinal sin of leaving money on the table by turning away advertisers, there is little worry these prospective clients will not be willing to advertise on the platform in subsequent months and years. The bottom line is Baidu is worth investing in. Buy and hold.
Regards,
Ethan Warrick
Editor
Wealth Authority
