Don’t Bail on BIDU Stock Just Yet
You don’t have to be a creative child to notice that the shape of Baidu Inc (ADR)’s (NASDAQ:BIDU) chart, with its peaks and valleys, looks like an especially emotional person’s EKG. Baidu stock has been everywhere and in between, from valleys of $85.00 in 2013 to peaks of $249.00 in November of 2014 and back down again to $134.00 in October 2015.
After zigzagging through the spring of 2016, Baidu stock is once again on a bullish curve. It gained 2.4% on June 28 as the markets passed through Brexit damage to Brexit acceptance mode. Even though tides lift all boats—unless they have holes in them—Baidu stock is not just riding on everyone else’s fumes. The company has actual substance. Analysts expect Baidu stock to hit $205.57 on average and some say it could hit $223.00, marking a rather sizeable 40% gain. Even at the pessimistic end of the target ($180.00), there is still 13.75% to be taken. (Source: “Baidu, Inc. (NASDAQ:BIDU) Median Target At $215,” Markets Daily, June 26, 2016.)
If there is a cloud over Baidu stock’s future performance, it’s that China’s cyberspace czar has started to censor the web site. In the past, China’s Cyberspace Administration limited its attention to politically sensitive web sites. Now it’s focusing on companies that engage in purveying content that attract customers with, to be polite, exaggerated claims of wealth, beauty, or health. That might be a good thing in the end, but it could affect revenue while Baidu reaches a balance. (Source: “Baidu’s Woes Grow, A China Opening For Bing Or Yahoo?,” Forbes, June 27, 2016.)
Baidu said it may see a slight dip in revenue—from a previous 20.1 billion yuan to 18.0 billion yuan—but Baidu is also developing technologies that will add revenue in the longer term, including autonomous driving for the mass market by 2021. (Source: “Where Baidu Is Heading With the Driverless Car,” The Wall Street Journal, June 8, 2016.)
Some suggest Chinese authorities’ new Internet morality campaign might hurt Baidu. But not everyone has received this memo yet—or, more likely, they are choosing to ignore it—because Baidu stock is rebounding. Indeed, correction or not, Baidu’s growth potential in China and beyond far outweighs any government effort to regulate its content. While Internet users in the West visit social networks such as Facebook, Twitter, or LinkedIn, searching for information on Alphabet Inc’s Google or Yahoo! as they buy from Amazon or eBay, paying for goods via PayPal. In Asia, and China foremost, Web users are not so struck by the West.
The so-called GAFA (Google, Apple, Facebook, and Amazon) might dominate the computer and smartphone screens in the West, but in the East, the GAFA have little impact because users tend to behave differently. Additionally, those same authorities going after Baidu go after the largely American web sites and block the GAFA. In turn, they have helped fuel the rise of Chinese equivalents such as Baidu, nurturing its growth to the point that this web site can challenge Google.
Baidu, dubbed the “Chinese Google,” gets more users than any other similar service in China by far and competes with Google in user numbers. Like Google, Baidu is broadly diversified and offers music, movies, mapping solutions, data storage, and online payments. Baidu has also been developing software for a self-driving car.
Alibaba may be the Chinese company that western audiences know best, but Baidu gets more visitors. Indeed, this is the principal hint of Baidu’s potential. The Internet is still a growth industry in China and Baidu has the pole position to benefit from that demand.
Baidu stock has benefited from Chinese government protection so it’s only fair that from time to time, the government intervenes to straighten its path, but it can’t break its course.