Baidu beats the Street on top- and bottom-lines
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Baidu beats the Street on top- and bottom-lines

Chinese internet giant Baidu reported earnings last week that beat the Street’s expectations on the top- and bottom-lines. That’s particularly notable given recent worries over the health of the Chinese economy – and, in particular, the toll it could be taking on the health sector. In the same week that Baidu outperformed expectations, a number of its peers reported that they would be cutting jobs and spending over the year. That makes Baidu’s outperformance even more telling.

Baidu’s share price has appreciated by 2% so far this year

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Source: Yahoo Finance

For the fourth quarter of 2018, Baidu said that revenues came in at $3.96 billion. That’s a year on year increase of 22%, and an $80 million beat against analysts’ expectations. The company also overshot the Street’s prediction on income – albeit, while still seeing a year on year decline. Baidu said that non-GAAP net income decreased by 22% against the same period in the previous year to $589 million. That works out at $1.92 per adjusted share – a 16 cent beat against predictions.

Baidu is not immune from weaknesses that may appear in the market over the near-term. But its long-term tailwinds should remain the focus for investors. The company has an unshakeable hold on search in China, meaning it has to spend far less for traffic acquisition than its smaller rivals. It’s also in a period of rapid expansion, colonising the app space, virtual personal assistants, online video, cloud computing, autonomous vehicles, and more.

One of the key factors in this expansion is how Baidu can use things like Apps and artificial intelligence to power an interconnected ecosystem that should let it grow at a faster clip than the wider market. Discussing how this affects into its core business of search (which is still Baidu’s main money spinner, although the company is working hard to change that), CEO Robin Li made the following comment to analysts on an earnings call:

“Our focus in 2018 has been investing in organic traffic to accelerate our growth, and strengthening Baidu's content ecosystem to give users a better experience with search and feed. Daily active users on Baidu App, our flagship app, has been accelerating over the past year, due in part to the improved search experience and the strength of our feed. During the recent Chinese New Year Gala, the most popular TV show in China, Baidu participated in the Red Envelope Giveaway, which turned out to be a success. More users now realize that Baidu App is better, safer, and more powerful, as it integrates search and feed seamlessly, and provides a native app-like experience. In the future, we do expect search traffic in the Baidu App to grow much faster than the overall search market.”

Disclosure
Dominion holds Baidu in its Global Trends Ecommerce Fund.


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