Chinese search giant Baidu (BIDU, Financial), also dubbed the "Google of China," disappointed shareholders in 2016 as the stock was down nearly 13%. However, the stock is off to a decent start this year as it is up almost 6% year to date.
In past quarters, Baidu managed to report positive revenue growth, but that spectacular streak was ruined in the third quarter of fiscal 2016. Recently, the search giant reported its fourth-quarter results. In the final quarter, the company shared earnings per share (EPS) of 93 cents, exceeding the analysts’ estimates by 2 cents.
On the other hand, the company’s revenue came in at $2.62 billion, $50 million less than the consensus, which also represents a drop of 4% year over year. However, the plunge in revenue growth looks like a temporary issue as the company guided to revenue growing in the range of 4.2% to 7.6% year over year during the first quarter of fiscal 2017.
At present, Baidu governs over 80% of the internet search market in China. Accordingly, that leading position allows it to magnify its ecosystem like Alphabet’s (GOOG, Financial) (GOOGL, Financial) Google. The company’s ecosystem consists of Duer voice assistant, Baidu Maps, iQiyi, several online-to-offline services, etc., which help it generate targeted ads.
In the most recent quarter, Baidu’s active online marketing customer base came in at 552,000, a drop of 18.6% year over year, but that drop was partially offset by the 14.2% surge in revenue per online marketing customer.
Furthermore, the penetration rate of internet users in China currently sits at 53.2%, which clearly suggests there is still plenty of room for Baidu to expand its services in the future.
Moving ahead, artificial intelligence (AI) continues to change living standards, as it has been applied in a wide range of fields. According to a forecast report from PR Newswire, worldwide AI market is projected to grow to $16.06 billion by 2022 which throws light on a compound annual growth rate (CAGR) of almost 63%.
Artificial Intelligence signifies huge growth opportunities and Baidu appears to be in a great position to lead the AI revolution in China.
Summing up
Baidu displayed poor performance in 2016 mainly due to the strict advertising laws in China. The search giant’s ad platform is responsible for generating a significant portion of its overall top line, and strict advertising laws will certainly have a negative impact on its ad platform.
To overcome this, the company is aggressively focusing on several other high-growth markets, especially self-driving cars and artificial intelligence. Moreover, the stock is down approximately 30% from its all-time highs.
As a result, shareholders looking to initiate a position in the stock should wait for a dip, and existing shareholders should continue holding the stock for huge returns in the future.
Disclosure: No positions in the stocks mentioned in this article.
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