Chinese Tech Giant Baidu Ends 2020 on Solid Note, Shares Gain

Baidu, a leader in the Chinese search industry in terms of user market share, reported better-than-expected earnings in the fourth quarter, largely driven by pent-up demand for its cloud and other services, sending its shares up over 3% in extended trading on Wednesday.

The most used search engine in China said its total revenue jumped 5% to CNY 30.26 billion or $4.69 billion in the fourth quarter ended December 31, 2020, beating the Wall Street consensus estimates of CNY 30.06 billion.

Baidu’s non-GAAP EPS came in at CNY 20.08 or $3.08, well above the market expectations of CNY 16.89 or $2.51 per share.

“Baidu reported 4Q results with revenue in-line with market expectations and non-GAAP earnings ahead of consensus. For Baidu core, revenue and non-GAAP earnings beat our estimates, with non-GAAP op margin at 35%. For IQ, revenue came in-line and earnings beat on lower-than-expected costs. Mid-point of 1Q revenue guidance for Baidu beat consensus while IQ was inline,” wrote Thomas Chong, equity analyst at Jefferies.

The company, which generates the bulk of its revenue from pay-for-performance advertising and tailor-made advertising services, forecasts revenue in the range of CNY 26 billion to 28.5 billion in the first quarter of 2020.

The U.S.-listed Baidu‘s shares, which surged more than 70% last year, rose 3.5% to $319.5 in extended trading on Wednesday.

Executive Comments

“Baidu ended 2020 on a solid note with our business benefiting from improving macroeconomic environment and the digitalization of industrial Internet. Our focus on innovation through technology is paying off with Baidu Core non-marketing revenue growing 52% year over year in the fourth quarter,” said Robin Li, Co-founder and CEO of Baidu.

“As we enter 2021, Baidu is well-positioned as a leading AI company with strong Internet foundation to seize the huge market opportunities in cloud services, autonomous driving, smart transportation, and other AI opportunities. We also hope to capitalize on our huge Internet reach with more non-marketing services.”

Baidu Stock Price Forecast

Thirteen analysts who offered stock ratings for Baidu in the last three months forecast the average price in 12 months of $271.42 with a high forecast of $376.00 and a low forecast of $180.00.

The average price target represents a -12.07% decrease from the last price of $308.68. From those 13 analysts, 11 rated “Buy”, two rated “Hold”, none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $190 with a high of $250 under a bull scenario and $130 under the worst-case scenario. The firm gave an “Equal-weigh” rating on the Chinese tech giant’s stock.

Several other analysts have also updated their stock outlook. Mizuho raised the target price to $325 from $250. Baidu had its price objective hoisted by Oppenheimer to $305 from $165. The firm currently has an outperform rating on the information services provider’s stock. KeyCorp raised their target price to $290 from $190 and gave the stock an overweight rating. Citigroup raised their target price to $292 from $183 and gave the stock a buy rating.

Analyst Comments

“Following a sharp recent rally, we maintain our EW rating on an industry-relative basis. Baidu has provided better disclosure and has struck a constructive tone on its AI initiatives. We find it well-positioned in certain industrial applications. We also like its rich cash position and strategic investments,” said Gary Yu, equity analyst at Morgan Stanley.

“Our price target reflects the materialization of AI investments, but we highlight milder near-term growth vs. peers amid risks from the competition. The company is well-positioned to ride the next Internet wave, but patience is needed. Our price target implies 18x consensus 2021e non-GAAP P/E the vs. historical 11-24x trading band since 2019.”

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