Baidu Inc (ADR) (BIDU) Stock Surging on Technology Advances

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BIDU - Baidu Inc (ADR) (BIDU) Stock Surging on Technology Advances

Baidu Inc (ADR) (NASDAQ:BIDU) shares have staged an impressive rally this year, with the gains coming to about 46%. Yet, this pales in comparison to other mega Chinese-based tech operators. For example, Alibaba Group Holding Ltd (NYSE:BABA) is up 95% and Tencent Holdings Ltd (OTCMKTS:TCEHY) has returned about 79%.

However, BIDU stock appears to be far from finished with its rally.

If anything, the company has been recovering from some of its prior stumbles. Perhaps the most impactful one was the situation with Wei Zexi. This was a 21-year old Chinese student who died after getting an experimental treatment that he learned about from a promotional ad on BIDU. Because of this, the Chinese government instituted stricter regulations — and, yes, this resulted in a dampening of the revenue base.

But there is something else that has weighed on BIDU stock — the company’s attempts at diversification. Often these efforts have been expensive distractions.

A prime example is the multi-billion dollar foray into the takeout delivery business. While the market opportunity was attractive, BIDU didn’t have the heft to compete. So, the company recently unloaded the business to rival to Ele.m, which is backed by BABA.

Yet, this move should actually be a good sign for holders of Baidu stock. It’s a recognition that the company realizes it needs to focus on its core advantages.

After all, BIDU remains the dominant player for online search in China — which is a source of high-margin revenues. The business also has a significant moat, such as network effects. Because of this, it would be extremely difficult for a rival to upend it. Note that BIDU has maintained a majority marketshare since it was launched in 2000. Over the years, the company has also invested heavily in its R&D, such as with mobile apps and voice-activated search. It also helps that the Chinese market is walled off against foreign rivals.

Growth Drivers for Baidu Stock

Search provides a great platform to leverage other value-add businesses. Hey, BIDU has the advantage of looking at the Alphabet Inc (NASDAQ:GOOGL) playbook! This is certainly evident with its efforts relating to online video. Keep in mind that BIDU is one of the leaders in the category, as its platform — called iQiyi — has 75 million PC users and 146 million on mobile.

There is something else that has come from the search business: AI (Artificial Intelligence). This is because search requires highly sophisticated algorithms to mine huge amounts of data. All of this technology has been consolidated into something called Baidu Brain, which includes 60 types of AI services.

For example, there is DuerOS, which is a natural language system like Google’s Now or Amazon.com, Inc.’s (NASDAQ:AMZN) Alexa. And, yes, and BIDU is also leveraging AI to make a big play for the self-driving market. This is part of an open platform called Apollo, which already counts 70 partners, including NVIDIA Corporation (NASDAQ:NVDA). To bolster this effort, BIDU also recently formed a $1.5 billion venture fund to target the opportunities with autonomous systems.

The goal is the invest in 100 startups over the next few years.

Bottom Line on BIDU Stock

As seen with the latest earnings report, BIDU is getting traction with its changes. Revenues rose by 14% to $3.08 billion and earnings nearly double to $822 million. The guidance was also encouraging. For the third quarter, the company is forecasting revenues to increase by 27% to 30%.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.

True, the valuation on BIDU is not necessarily cheap, with the forward price-to-earnings ratio at 27. But then again, the Chinese market is massive and should provide for long-term growth, especially as the company plans to focus more on key areas like search and AI.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/baidu-inc-adr-bidu-stock-surging-technology/.

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