Is Chinese tech stock Baidu Inc worth investing in 2022?
Stock Name and Trading Stock Exchange Platform
Baidu Inc – NASDAQ (NASDAQ: BIDU)
- HKG (Hong Kong Stock Exchange)
The Stock Sector
Baidu is a Chinese-based technology multinational offering Chinese languages internet search platforms/providers. It is the largest search engine in the People’s Republic of China, with over 75% market share in 2021.
Baidu is one of the leading AI and internet companies in the world. Its websites enable users to surf the web, access mapping services (Baidu Maps), get cloud storage services, and a use plethora of customized web tools.
BIDU operates in three main sections: Transaction services, search services, and iQiyi (an online video streaming service company).
The majority of the company’s revenue comes from online advertising (70%). The company operates in several countries around the globe through Baidu global business unit (GBU).
BIDU was founded in 2000 by Robin Li (CEO) and Eric Xu. BIDU headquarters are located in Beijing, China. The company employs around 45,500 people worldwide.
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Recent News on Baidu
Chinese tech stocks have had a severe downturn spiral in the past year following a crackdown by Beijing and the CCP.
The top tech companies like Alibaba ($BABA), Tencent ($TCEHY), and JD.com all came tumbling down as China tightened regulation of their operation with extreme measures.
Luckily, hints are popping up regarding the CCP being more lenient and not interfering in the operations of the companies listed outside the US.
Baidu was among some of the Chinese companies facing the risk of delisting, after probing by the SEC. This is because of non-compliance with auditing rules by the companies that only file reports in their country.
Baidu and other stocks saw a strong rebound in mid-March before crashing again, which was credited to SEC inquiries, the Russian-Ukraine conflict, and selling pressures after the surge.
Baidu is said to be exploring options at the moment, amidst the threats of delisting. This has caused the company to crash again in the past week together with its holding iQiyi and other Chinese companies like Futu.
Baidu released its fourth-quarter earnings on 01 March 2022. Its online advertising business took a nosedive, attributed to the company putting more effort into AI at the expense of the segment.
AI performed splendidly reinforcing the company’s position as a leader in the space, not just in China but the world over.
The stock however did plummet due to the performance since online advertising accounts for its core revenue generation.
The Macro-environment in China has been very unfriendly, discouraging not only foreign investment but the country’s industrialists as well.
JD.com CEO and co-founder Richard Liu stepped down from the position and is among many others who opted for flight due to the plight of the state’s scrutiny.
Current Position of Baidu
Baidu is still a leading provider in its industry despite the heavy downturns witnessed. The company has a current market capitalization of $48.76B, a towering position although declined.
The company has been relentless is in expanding and making acquisitions. It owns several subsidiaries including Baidu Japan Inc, TrustGo Mobile Inc, Baidu Holdings Limited, and KITT.AI to mention a few.
Vertical integration is trusted by the company to ensure longevity and protect from concentration risk. The company has however directed most of its energy and resources to the development of AI, which it believes is the most fundamental technology that will shape humanity in the future.
Baidu has also revealed plans to explore the metaverse and research into the same is actively ongoing. The company has not been priorly involved in this. It is in the virtual assistant sector, which is projected to grow rapidly in the coming years.
Baidu is on a mission to fundamentally disrupt the next frontiers in emerging technologies.
These include sectors such as;
- autonomous driving;
- Cloud computing;
- Microchip Technology;
- Machine learning;
- Augmented reality; and; a whole lot of others.
It has together with other Chinese companies agreed to commit the next five years to research and development.
Institutional ownership account for more than 50% of Baidu. These include famous corporations like Blackrock, Vanguard, and many others. The CEO owns 20% of the company and is the largest shareholder. The general public has a 27% stake in the company.
Baidu is involved in a lot of promising sectors. Online advertising is still the largest contributing segment at the moment but AI might soon overtake this, as it increasingly gains momentum.
Baidu is currently trading at $140 as of 06 April 2022. The company is way vastly down from its all-time high last year. It has plunged by more than -50% over the year.
Baidu stock is trading at a day range of $135.9- $139.6. The yearly high was recorded at $228.5 and it has traded at a low yearly range of $102.18.
The company was trading on a horizontal path before the pandemic. It rose significantly before the beginning of 2020 when it started to massively crash. The company saw unprecedented lows during this time as the pandemic spread, hitting a record low of $84 in March 2020
It began to rise back slowly after March and witnessed the occasional volatility. The company soared to new heights in 2021 as it recovered and got better.
Just when things were looking good, the CCP began its crackdown and censorship of its industries. This move proved just how lethal government intervention can be in a market.
Political risk is the biggest risk that investors face today and this was surely witnessed in China. Regulations by both US and Chinese authorities will affect the direction of the stock.
The volume of shares traded by the company has increased over the years now to 5.91M. This is a slightly negative indicator showing Baidu is diluting its shares.
It is down by -1.73% over the month, -13.14% in the past 6 months, and -38% over the year.
Sentiment for Baidu
Baidu is seen as a prospective company along with other Chinese stocks. The stifled business environment has hampered the growth of the stock. Additional taxes and increased costs certainly have adverse effects on a business.
The company has performed well in the last five years, but the recent two preceding years have been tough on them.
Investors are very optimistic about the performance of these companies due to a strong potential to rebound and the easing of previous limitations. The low prices are a discounted opportunity.
Baidu is currently below its intrinsic values of a high $400 and a low $154%. Respected experts such as Cathie Wood have also spoken of the opportunity in Chinese stocks.
Baidu is a haven considering its trading at a low price around the prevailing market mania. It should be around for years to come thus a no-brainer for investors to consider in their portfolio.
Profits for Baidu
Baidu has been extremely profitable over the years, but this has slowed down over the past two years. Revenue grew over the past year by +9.33% recorded at $33.09B. although advertising revenue was down, it was still at a solid 57% of total revenue.
Non-advertising revenue, particularly AI did well and saved the day for the company. Their autonomous ride-hailing segment also increased steadily over the year.
The net income was down by -66.85%, estimated at $1.72B for the year. The net profit margin also tanked by -69.71%, calculated at 5.18%. Operating income went down by -81%, valued at $1.15B for the year.
Cash and equivalents increased by +2.98%, posted at $36.58B, a sigh of relief for the company. The cost of revenue went up by+28%, valued at $17.12B.
The Baidu company has proved that it can be a good return for its investors even despite headwinds.
Future of Baidu
China is rushing to become the next economic power of the globe. The country is still faced with serious impediments and a significant number of the population are still impoverished.
The Chinese government will have to allow capitalists to innovate and push the economy forward if Baidu expect to achieve their goals.
Baidu will be one such company they will want to ensure it has continued operations. It accounts for a good margin of the GDP and is pushing new ambitious discoveries.
The future looks bright for Baidu if regulation barriers are eased and they are allowed to blossom. They have well established themselves as a tech powerhouse in the industry.
Baidu are looking to get involved in virtually every technology that seeks to revolutionize entire markets.
Baidu will certainly be in a stronger position in a few years to come as they complete their developments.
Overall Verdict on Baidu
Baidu is a potential value stock that is currently undervalued and volatile at present. It has been bearish in the last year and this might continue, but not for long.
Moving averages show a strong sell while oscillators are neutral. Analyst’s consensus on the stock is a strong buy.
The Baidu stock is only a buy for a long-term holder.
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