Baidu Inc. (BIDU, Financial) rewarded shareholders with impressive returns in 2017 as the stock gained nearly 43%.
Shares of Baidu were up almost 5% on Feb. 14 after the company reported healthy fourth-quarter results. For the quarter, the Chinese search engine posted earnings per share of $2.29, beating the consensus estimate by 19 cents and increasing 145% year over year.
Quarterly revenue came in at $3.62 billion, missing the consensus by $20 million. Despite the miss, revenue grew 29% year over year. The company's online marketing revenue grew 26% on an annual basis.
On the other hand, management said it will aggressively focus on reinforcing its core business as well as deploy artificial intelligence (AI) to enhance iQiyi this year. Artificial intelligence continues to be the most significant driver of the company's growth.
Baidu has made several AI-related improvements to its core business in order to enhance the optimization of its advertising platform. Its ambitions in artificial intelligence, however, incorporate various other hot growth markets, such as self-driving cars. The company recently entered a deal with Huawei to develop an open AI mobile ecosystem, involving internet services, technology and devices, in an effort to further enhance the user experience.
Baidu recently announced it will list its video streaming service, iQiyi, in the United States. The company has an 80.5% stake in iQiyi, which is one of the biggest video streaming players in China with approximately 500 million monthly active users (MAU).
The company is heavily investing in producing original and acquired content. In the third quarter, Baidu’s overall content costs reached almost 16%, up from 14% a year ago, due to iQiyi’s growing content acquisition costs. It is also spending a lot on marketing.Â
Although the iQiyi platform is not profitable yet, things will likely change soon as Baidu continues producing high-quality content.
Summing up
Shares of Baidu have jumped significantly over the past 12 months, forcing investors to consider whether the stock has meaningful upside potential. Shareholders, however, should not forget Baidu dominates the Chinese internet search market. It is also working diligently to connect more and more people to the internet.
On the other hand, the company’s focus on artificial intelligence will further improve its user experience, which in turn will appeal to advertisers.
Considering the above factors, the company should continue experiencing enormous growth in the years ahead. The stock currently trades at a price-earnings (P/E) ratio of 31.5, suggesting it is a bit expensive. Baidu’s growth prospects, however, look strong, which should send the stock even higher in the coming quarters.
While existing shareholders should continue their long-term journey with Baidu for more gains, investors seeking to initiate a position in the stock should wait for a dip before buying.
Disclosure: No positions in the stocks mentioned in this article.
