This Could Be a Big Catalyst for BIDU Stock
Baidu Inc (ADR) (NASDAQ:BIDU) was rising on the NASDAQ by some 1.5% despite the fact that the company revised its second-quarter revenue forecast downward. Is this a sign you should consider BIDU stock for your portfolio?
Well, you could do worse. Indeed, investors trust in Baidu stock to the point that they can dismiss bad news as a temporary blip. They understand that the lower estimate is not material to the group’s overall performance.
Instead of worrying, investors are confident that Baidu stock will return to normal in the coming months. This means Baidu stock could be available to interested investors at a nice price now, before the key bullish developments the market expects surface.
Baidu, China’s main Internet search engine, adjusted its forecast because of the increased spending it will face to offset the sharp drop in the financing of Beijing’s health sector. That’s all. It has nothing to do with its performance now or its future performance expectations. More specifically, the Chinese government has imposed a cap on the number of health advertisements that Baidu publishes after a student died taking an experimental cancer drug he found through the search engine.
The result is that Baidu now expects revenue of between 18.1 and 18.2 billion yuan, compared to the 20.11 to 20.58 billion yuan previously expected. The Bloomberg consensus came in at 20.08 billion yuan. But the reason investors are not budging is that Baidu stock is just a few steps behind Google. It is the “Chinese Google,” in a sense. Indeed, like the Mountain View company, Google is developing technologies that stretch far beyond the realm of search engines.
Baidu has thrived in China thanks to Beijing blocking Google, but this is an incubation strategy to insulate homegrown giants from competition that has worked well for Japanese and Korean companies. Baidu is building its own loyalty and its users rely on it even when they are traveling outside China. (Source: “How Baidu Is Strategizing To Retain Its Key Users,” Forbes, March 7, 2016.)
Baidu, like Google, is also actively developing the technology for autonomous (self-driving) cars, with mass production of vehicles announced for 2021. Baidu plans to launch production of its autonomous cars within five years, said Wang Jing, senior vice president of the company, in the columns of The Wall Street Journal. Children born today will perhaps never have to pass their driving test, says the business daily. (Source: “Where Baidu Is Heading With the Driverless Car,” The Wall Street Journal, June 8, 2016.)
From a business perspective, consider that China is by far the world’s fastest-growing car market. Such is China’s car sales potential that manufacturers from all over the world are launching new models with designs and features that appeal to Chinese consumers. Baidu, which would enjoy massive advantages in the Chinese market alone, also plans to sell its driverless technologies in other countries. It plans to launch its autonomous cars simultaneously worldwide. (Source: Ibid.)
Of course, there’s plenty of market share to go around, keeping both Baidu and Google happy. This is because, other than the mechanical hardware, Europe has remained silent in the matter of driverless technology. Indeed, Europe doesn’t have anything similar to Baidu or Google in any area, least of all an Internet search engine. Recall that Nokia, which was for a few brief years one of the largest mobile phone manufacturers, was completely overtaken by Apple when it came out with the “iPhone.”
Baidu is following in Google’s footsteps, which plans to offer its autonomous cars starting in 2020. Like Google, Baidu is also following the U.S. giant on mobility and cloud services. My fellow investors, Baidu—a company that will benefit from just about all of the demand that Google can generate—currently sits at about a fifth of the price.
As for Baidu stock itself, it is slated to hit the $200.00-per-share mark by the end of the year. The analyst consensus is $223.00, with some analysts predicting $235.00.
If Baidu has a weakness, it can blame the volatility of China’s stock market more than any factor specific to itself. And if that doesn’t convince you, consider that Baidu boasts some $11.0 billion in cash. This means it can buy back its own shares anytime it wants.