Will Baidu’s AI Innovations Boost Stock After Q2 Results?

The Chinese search engine giant Baidu’s shares Baidu Corp. (NASDAQ: BIDU) is expected to report its second-quarter 2024 results around August 22. We expect Baidu to report revenue of $4.7 billion for the quarter, roughly in line with last year and in line with consensus estimates. We estimate earnings of around $2.60 per share, slightly above consensus. So what are the trends likely to impact Baidu’s earnings for the quarter?

In the first quarter of 2024, Baidu reported revenue of 31.513 billion yuan (about $4.37 billion), up 1% year-on-year, while adjusted net profit came in at 7.01 billion yuan (about $971 billion), up about 22% from a year earlier. The growth was mainly driven by the company’s online marketing business, which sells advertising. Demand for search advertising and online marketing has recovered slightly in China as more businesses look to target customers online following the country’s economic reopening. However, we believe the online marketing business could face headwinds in the second quarter as consumer spending growth slows in China. The Chinese economy grew 4.7% in the second quarter compared to a year earlier. Moreover, retail sales of consumer goods, which are an indicator of household spending, rose only 2% in June, well below estimates.

Baidu is considered a leader in artificial intelligence in China, with a search engine and a self-driving taxi arm called Apollo Go. In the previous quarter, non-marketing revenue reached 6.8 billion yuan ($935 million), up 6% from a year earlier, mainly driven by the AI ​​Cloud business. While the cloud business may struggle as companies cut IT spending due to the mixed economic environment, we will focus on the performance of the AI ​​business. In the latest quarter, Baidu said that PaddlePaddle, the open-source deep learning platform it developed, now has about 13 million developers on board. The company also expanded its ERNIE family of large language models, launching several more cost-effective lightweight models.

BIDU stock has suffered a sharp decline of 65% from $215 in early January 2021 to around $80 today, compared to an increase of around 40% for the S&P 500 over that roughly 3-year period. It is worth noting that BIDU stock has underperformed the broader market in each of the last 3 years. The stock’s returns were -31% in 2021, -23% in 2022, and 4% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023, indicating that BIDU underperformed the S&P in 2021, 2022 and 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been tough in recent years for individual stocks; for IT heavyweights including AAPL, MSFT and NVDA, and even for mega-cap stars GOOG, TSLA and AMZN.

On the other hand, the Trefis High quality walletwith a collection of 30 actions, has has outperformed the S&P 500 every year over the same period. Why so? As a group, stocks in the HQ portfolio have delivered better returns with less risk relative to the benchmark; less of a roller coaster ride as evidenced Headquarters Portfolio Performance Indicators. Given the current uncertain macroeconomic environment, characterized by high oil prices and high interest rates, could BIDU face a situation similar to that of 2021, 2022 and 2023 and underperform the S&P over the next 12 months – or will there be a recovery?

We believe Baidu stock is attractive at current levels of around $84 per share. Baidu is trading at less than 8 times consensus 2024 earnings. This is well below the nearly 40 times multiple the company was trading at in February 2021. Additionally, Baidu had a large cash position of nearly $26 billion at the end of Q1 2024, while its debt stood at around $9.5 billion. This implies that Baidu’s net cash position is $16.5 billion, which is more than half of the company’s current market capitalization. We value Baidu stock at around $127 per share, which is well above the market price. We will revisit our price estimate for the company after its Q2 results are released. See our analysis of Baidu’s revenue And Baidu Evaluation for more details on the company’s revenue performance and how its valuation compares to its peers.

Invest with Trefis Market-beating portfolios

See all Trefis Price estimates