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Baidu Reports Earnings Today, Let’s Look at the Stock

April 8, 2017 / By /
Stock (Symbol)

Baidu.com (BIDU)
Stock Price

$193
Sector
Technology
Data is as of
April 16, 2016
Expected to Report
Apr 28
Company Description
baiduBaidu, Inc. (Baidu) is a Chinese-language Internet search provider (ISP). Baidu serves three types of online participants, which include users, customers and Baidu Union Members. The Company offers a Chinese-language search platform on its Website, Baidu.com. It provides Chinese-language Internet search services to enable users to find relevant information online, including Web pages, news, images, documents and multimedia files, through links provided on its Websites. It designs and delivers its online marketing services primarily on its Baidu.com Website to its online marketing customers. As of December 31, 2014 the Company had approximately 813,000 active online marketing customers. Its online marketing customers consist of small and medium enterprises (SMEs) throughout China, domestic companies and Chinese divisions or subsidiaries of multinational companies. Source: Thomson Financial
Sharek’s Take
David SharekBaidu is set to report earnings tomorrow, so I wanted to look at the stock to see if it would be a good bet to get in before the company reports. At first glance — no. Here’s why:

  1. Although the company “beat the street” in 3 of the last 4 qtrs, in each case the numbers were lowered by a greater amount before the earnings release. 4QtrsAgo BIDU beat by 3 cents, but in the months leading up to the release date the profit figure was reduced by 40 cents. LastQtr the company beat by 24 cents, but this figure was lowered by a penny the qtr prior, 95 cents the qtr before that, and 13 cents the qtr before that.
  2. Profit growth has been negative for the last 2 qtrs, and 3 of the last 4 qtrs. Profits are expected to fall 12% next qtr. I’m guessing BIDU will “beat” and maybe have slight profit growth.
  3. Annual Profit Estimates have fallen precipitously in each of the last 4 qtrs. 2016’s have gone from $9.35 to $7.42, $6.77 and $6.39. 2017’s from $12.11 to $10.23, $9.24 and most recently $8.79.

Now on the bright side, if the company makes $8.79 next year and earns a 30 P/E the stock will shoot to $264, a gain of more than 30%. BIDU closed at $188 today, the charts and tables below are as of April 16 when the stock was $193.
One Year Chart
BIDU_2016_Q1Baidu is in the habit of acquiring other companies and assets that don’t correlate to its search engine model. Thus earnings per share have taken a hit. In 2015 the company grew revenue from $49 billion to $66 billion (+35%) yet profits fell 19%. But, I do see light on the horizon as profit estimates for the next 4 qtrs are -12%, -2%, 52% and 72%. IF BIDU doesn’t lower estimates today the stock COULD start to move higher. We’ll see. Nice Est LTG of 33% and the P/E of 30 is reasonable.
Fair Value
BIDU_2016_Q1_PHI owned BIDU from 2006 to 2015 and sold during the Chinese stock market crash in the Summer of 2015 as the stock was in a free-fall. Now I’m looking to get back in. My Fair Value analysis shows the stock is fairly valued here, with solid upside when we look out to 2017.
Bottom Line
BIDU_2016_Q1_10yrBaidu has had a profitable — if not volatile — decade. 2015 was the first year in its history as a public company that it didn’t grow profits. 2016 looks to be a bounce-back year but the key is earnings estimates. I feel the company will beat the street later today, but I think the key is estimates going forward. If BIDU lowers estimates then I might stay on the sidelines. If estimates rise (or even stay the same) that could be enough to send the stock higher. Right now my plan is to buy back in later this year.
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