Stock (Symbol) |
Baidu.com (BIDU) |
Stock Price |
$226 |
Sector |
| Technology |
Data is as of |
| August 1, 2017 |
Expected to Report |
| Oct 26 |
Company Description |
 Baidu, Inc. is a Chinese language Internet search provider. The Company offers a Chinese language search platform on its Baidu.com Website that enables users to find information online, including Webpages, news, images, documents and multimedia files, through links provided on its Website. In addition to serving individual Internet search users. Its business consists of three segments: search services, transaction services and iQiyi. Its transaction services include Baidu Nuomi, Baidu Takeout Delivery, Baidu Maps, Baidu Connect, Baidu Wallet and others. iQiyi is an online video platform with a content library that includes licensed movies, television series, cartoons, variety shows and other programs. Source: Thomson Financial |
Sharek’s Take |
 Baidu’s (BIDU) back as profits beat the street last qtr. The company clocked in with a profit of $2.38 vs. $0.98 a year ago and beat the street by a whopping 90 cents. The stock broke out on the news and even at these high levels has good upside to my 2018 Fair Value. Although the stock is back, this company has a lot of unanswered questions about its business model. I previously owned BIDU in my Growth Portfolio (bought at $9, sold at 19, bought at $43, and sold at $158). When I last sold in 2015 I didn’t like the spending spree to diversify away from its core search business, including a Brookstone type retail store that sells things like a wireless fishfinder. In 2015 BIDU felt services that people order from their phone (like food delivery) would define the company, then last month threw in the towel and sold its unprofitable Waimai food delivery business. This year 2017 Baidu hired a former Microsoft executive to reshape the company, and focus on cloud computing as well as artificial intelligence — as its core search ad business has competition from other in-app searches. So far this seems like a good move, cloud customers are set to increase ten-fold this year, with sales increasing four-fold. Still, online ads were 86% of total sales last qtr. So this is still really a search engine. Also, that big earnings beat was mainly from management trimming sales and marketing expenses. Revenues grew only 14%. So should we buy in? I say yes because the move into AI might work long-term, and by that time the stock could be a lot higher than it is now. Also, this stock “fits the mold” as profits are soaring, the company is beating the street, and profit estimates just jumped. I will add BIDU to the Growth Portfolio today, but am still sceptical about this transformation, thus it will be a small holding in client accounts. |
One Year Chart |
 Last qtr BIDU delivered 143% profit growth which beat estimates of 51%. Afterwards profit estimates soared, with $2017’s est. going from $5.73 to $6.78, 2018’s from $7.85 to $8.63, and 2019’s from $10.10 to $10.88. The Estimated Long-Term Growth Rate increased from -12% to 22% and now 25% the last three qtrs. Qtrly profit Estimates 61%, 101%, 52% and 2% with the last number low due to the recent beat (tough comparisons). Qtrly estimates also jumped higher this qtr. P/E of 33 is around where it should be. |
Fair Value |
 The issue with not buying BIDU is profits are expected to jump the next two years, and if the stock follows the profits it will be a lot higher than it is now. So it’s hard for me to wait to see if the AI investments will pay off. My 2018 Fair Value increased from $275 to $302 this qtr. Also, analysts have BIDU earning more than $10 in 2019, and a 35 P/E could mean the stock going up 40% to 50%. |
Bottom Line |
 Baidu has gone from leader to laggard and now leader again. But I’m a seasoned veteran with this stock and I don’t have a lot of confidence Baidu will be able to pull off this transformation. But it has the money and the profits to so we’ll see. In the meantime the stock fits the mold and not buying could be letting a potential winner pass us by. I will add the stock to the Growth Portfolio, but won’t make it a big position. BIDU will rank 28th of 34 stocks in the Growth Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
28 of 34Aggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
