Baidu: Leading the Way in AI Cloud

Baidu, Inc. NASDAQ: BIDU has expanded its business model over the last several years. While the company continues to dominate the domestic Chinese search engine market with a 79.52% market share with its Baidu app, accelerated growth is set to come from its AI Cloud solution, which delivered a 45% increase in sales over the last quarter. Users can tap into Baidu’s AI Cloud to apply machine and deep learning to complicated tasks that are typically completed by teams of individuals, leading to scaling cost and application efficiencies. Baidu has made headway in securing market share in China with its AI Cloud, with a 26% stake and recent data shows it’s pulling ahead of its rivals Alibaba NYSE: BABA, Huawei, and Tencent HKG: TCEHY in this growth engine for the company.

Baidu Beats Q1 2022 Estimates

In addition to growing its AI Cloud service, the business also convincingly beat analyst earnings forecasts for Q1 this year. Baidu finished on a Non-GAAP EPADS of $1.77, beating it by a whopping $0.94. Revenues grew 1% YoY to $4.48B, beating estimates by $320M. The company also reported a negative free cash flow of $17M, with the majority of its losses incurred from its iQIYI content streaming service; when this operating segment is excluded the company’s free cash flow ended at $175M.

While looking at Baidu’s operating segments more closely one can see the strengths and overall direction that the company is headed. Non-online marketing revenue for Baidu was up 35% YoY to $903M as it pivots towards offering more cloud and AI-based services. Still, Baidu Core, which includes its search app, continues to contribute the most to the company’s top line with $3.37B, growing 4% YoY. iQIYI contributed $1.15B worth of revenue, and its revenue is decreasing 9% YoY. Analysts have suggested that iQIYI is suffering from a number of headwinds: including a contracting subscriber base, content shortages, and increased competition from rival platforms Bilibili, Douyin, and Kuaishou. 

Baidu’s Estimated Performance for Q2 2022

Baidu is currently up 1.88% YTD and rose 14% following its earnings release for Q1 this year. The company is trading 39% below the MarketBeat consensus price target which may be seen as an indication that the company is either undervalued or underperforming analysts' expectations. In either case, executives at Baidu have stated that the company will have a challenging next quarter as COVID-19 continues to grip its domestic market. China is continuing with its zero-covid policy with lockdowns in its major economic hubs such as Shanghai, which is expected to curb revenues from its most significant operating segments. Due to the unpredictabilities of the epidemic, executives declined to give guidance for the rest of this year.

Baidu Technical Analysis 

Baidu is one of the few stocks in the Internet industry that has managed to consolidate its price over the last few quarters, while its peers continue in a clear trend towards the bottom. Changing investor risk and investment appetites and a slew of macroeconomic headwinds have hit these stocks hard. However, there has been a brief respite for the tech-heavy NASDAQ as it jumped 1% over the last few days, giving bulls a much-needed break.

Over the medium term, Baidu's price is heading to the upside with momentum and price trend confirming this. In the immediate timeframe, Baidu is rebounding back towards the mean after briefly trading two standard deviations above it. Volume is also confirming the reversion back towards the $124 level, with more conviction on red candles than green. It's expected that the stock will continue its horizontal movement with a low amount of volatility as the Bollinger Bands contract again.