One factor is that the company has missed out on growth in new industries like fintech, chat apps, and e-commerce. The company has responded with aggressive efforts to position itself for growth in newest industries such as cloud computing, AI, and autonomous driving. Therefore, investors are paying close attention to Baidu's earnings to see if these efforts are bearing fruit.
Inside the Numbers
In Q1, Baidu reported adjusted earnings per share of $1.93, topping analysts' expectations of $1.64 per share. Revenue also came in higher than expected at $4.4 billion vs forecasts of $4.2 billion.
More important, the company showed strong growth in non-advertising revenue indicating that its growth plans are on track. Major contributors were cloud computing, AI, and its automotive driving unit which increased by 70%. Baidu Chair and CEO Robin Li said that non-ad revenue could exceed ad revenue within the next 3 years.
Many are especially bullish on the company's autonomous driving which has been in development for 8 years. The company plans to sell its own EVs as well as its own network of robotaxis. The company has already signed deals with 8 companies to have its software preinstalled in new models.
Online ad revenue increased by 27% and is expected to continue to be strong based on a stronger economy leading to more demand and higher ad rates. The company also issued guidance above expectations for between $4.5 billion and $5 billion in revenue for Q2.
Stock Price Outlook
Following the earnings report, Baidu's stock opened higher by nearly 4% but then gave back all these gains. This poor performance following strong earnings has been happening in many tech stocks.
However, Baidu is in a major bear market as the stock is down by nearly 50% over the last 3 months. The catalyst was the liquidation of Archegos Capital's holdings which included Baidu. Additionally, the company's stock had run up in previous months after it announced an EV joint-venture.
While, the negative earnings reaction means the stock should be treated with caution in the near-term, the growth in its non-ads unit is clearly a positive development. Further, Baidu's stock is very cheap relative to other companies in the autonomous driving, cloud computing, and AI space. And, Baidu is able to invest in these industries using cash flow from its operations while many other companies are forced to raise capital or issue equity or debt to raise money.