Baidu (BIDU) dominates internet search in China, as Alphabet (GOOGL)-owned Google does here, but is BIDU stock a buy right now?
BIDU Stock Technical Analysis
Baidu stock is attempting a recovery after a long and sharp decline. Shares hit a record 284.22 in May 2018 and a six-year low of 93.39 in August 2019. Shares rose 1.2% to 127.78 in stock market trading Jan. 28, just below the 10-week line after regaining the 40-week average some weeks ago.
BIDU stock traded largely in line with the 10-week line but below the 40-week for most of 2019, according to MarketSmith analysis. It could be a while still before a buy point emerges.
For all of 2019, Baidu shares slumped 20% vs. a 29% gain for the SPDR S&P 500 ETF (SPY) and a 30% gain for the KraneShares CSI China Internet ETF (KWEB), which holds a basket of Chinese internet stocks including Baidu.
Baidu’s severe underperformance in the past year is reflected in a Relative Strength Rating of 41. Meanwhile, the relative strength line for BIDU stock is in a multiyear downtrend. It is the blue line in the chart shown.
An Accumulation/Distribution Rating of B shows that institutions have been moderate buyers of Baidu stock in the past 13 weeks.
But in all of 2019, Baidu was hit with selling: 1,413 funds owned BIDU stock at the end of December, down from 1,428 in September and 1,552 in June. Top mutual fund Baillie Gifford International Growth slashed its small stake almost in half in the final quarter.
Baidu Earnings And Fundamental Analysis
On key earnings and sales metrics, BIDU stock earns a poor EPS Rating of 31 out of 99, and an SMR Rating of B. The EPS rating scores a company’s earnings growth, and the SMR rating scores it on sales growth, profit margins and return on equity.
Baidu has a solid earnings history and led the explosive rise of China internet stocks a decade ago. But recent quarters have seen double-digit declines, and a turnaround has not yet begun.
The Chinese internet search provider next reports Feb. 6 after the close. Analysts on average expect EPS to fall 5% to $1.82 as fourth-quarter sales slip 1% to $3.91 billion.
In Q1 of fiscal 2020, Baidu earnings are expected to more than double to $1.10 a share. In all of 2020, Baidu EPS is expected to grow 52% to $8.44. That would still be below Baidu earnings per share of $9.90 in 2018.
Baidu’s revenue is seen ticking up 0.2% in Q1 and growing 11.4% in all of 2020. Over the past three years, Baidu averaged 14% earnings growth and 17% sales growth.
Baidu Stock Basics
Baidu controls nearly 75% of search traffic in the world’s biggest internet market. The company generates 80% of its total revenue from online marketing services, mostly from advertisements.
Many Chinese internet stocks had a choppy 2019 as hopes rose and ebbed for a U.S.-China trade deal. But BIDU stock was the clear laggard vs. Alibaba (BABA) and Tencent (TCEHY). The three are collectively known as China’s BAT stocks.
Companies in China have cut back on online advertising due to stricter government regulation and a slower economy. Baidu has also been spending aggressively to pursue new growth opportunities. Some investments haven’t panned out, while others — such as driverless cars — are yet unproven. That all affects earnings, and thus BIDU stock.
Even iQiyi (IQ), Baidu’s spinoff for online video streaming, is seeing advertising revenue decline. The platform is seen as the Netflix (NFLX) of China, and actually licenses some content from Netflix. But it’s also a lower-margin business requiring costly investments to fend off Tencent Video, Alibaba’s Youku Tudou and other rivals.Baidu also was slow to grow its mobile business. The Baidu app has a falling share of mobile spend time vs. Tencent’s WeChat, according to Morningstar.
Meanwhile, Baidu has been expanding in artificial intelligence. Its new AI businesses include DuerOS, a voice assistant for smart speakers, smart displays and smartphones; Apollo, an open-source platform for self-driving cars; and Baidu Cloud, which offers tools for call centers and other enterprises.
The Baidu app averaged 189 million daily active users (“DAUs”) in September 2019, up 25% year over year. The app combines search and news feeds.
Also in September, Baidu’s DuerOS voice assistant topped 4.2 billion monthly voice queries, up nearly five-fold year over year. Baidu began a pilot program of its Apollo robotaxi, a fleet of 45 self-driving cars, the same month.
In December, Morgan Stanley boosted price targets for Baidu and Alibaba, calling the China internet sector “attractive.” The firm expects the Chinese e-commerce market to grow by 18% to 12.7 trillion yuan in 2020, driven by expansion from consumers to businesses and governments.
Baidu Stock Is A Laggard
Baidu earns a Composite Rating of 46 out of 99, IBD Stock Checkup shows. IBD’s Composite Rating combines key fundamental and technical metrics in a single score. BIDU stock ranks No. 25 out of 63 stocks within IBD’s internet content group.
The group itself ranks No. 41 out of 197 industry groups, up from No. 48 last week and No. 133 six months ago. It’s seen an uptick as worries about tariffs and global growth diminish, helped by the U.S.-China trade deal.
As a China internet stock, Baidu confronts unique regulatory risks. In 2016, Chinese authorities imposed new rules defining “paid search results” as a form of internet advertising. Those regulations have weighed on Baidu’s online marketing revenue.
However, Morgan Stanley sees regulatory headwinds easing in that country, according to the South China Morning Post.
Is BIDU Stock A Buy Right Now?
Baidu earnings are set to return to growth in 2020. But that will still put earnings per share below 2018 levels. That doesn’t look like a fundamentally strong company.
Baidu also has low IBD ratings, such as the RS Rating and EPS Rating, and lags its peers in those categories. The group itself has ticked up as trade headwinds fade, but China internet stocks aren’t driving that uptick.
Technically, BIDU stock is finding support at the the 50-day/10-week line, but shares aren’t forming a base so there is no buy point in play, and the RS line continues to look bearish.
Bottom line: Baidu stock is not a buy right now. This Chinese tech giant may return to the huge growth it once enjoyed, but for now, it’s best kept on your investing watchlist. Check back here for updates on any emerging buy point.
BIDU compares unfavorably, on the whole, vs. other top-rated large-cap stocks to buy and watch.