Baidu (NASDAQ:BIDU) is scheduled to report earnings on Feb. 27. The company was originally expected to report on Feb. 6 but moved the date back due to the company’s ongoing response to the coronavirus.
Analysts expect Baidu to post earnings per share of $1.26. The company reported an EPS of $1.32 for the same quarter in 2018. However, BIDU stock got a bit of a lift when the company took the opportunity of the delay to announce an upward revision to their fourth-quarter guidance. Baidu now says it expects revenue to be in a range of $4.06 billion to $4.15 billion. Previous guidance had predicted a range between $3.89 billion and $4.12 billion.
That is significant because had the former guidance come through on the low end, Baidu would have shown a year-over-year loss.
Is Baidu’s Forward Guidance a Sleight of Hand?
I’m not saying that Baidu’s numbers aren’t accurate. Companies know better than to over promise going into an earnings report. However, it could be a smart strategy to get investors looking at a strong fourth quarter rather than look at what could be in store for the stock in 2020.
Like many Chinese stocks, BIDU stock made a nice recovery after Chinese stocks plummeted on Feb. 3. By now investors have heard about the coronavirus. And while many investors have formed their own opinion, I’m not sure how you could.
It never ceases to amaze me how many American companies fail in the basics of crisis management. One of the first rules of crisis management is that information hates a vacuum. This means that if you don’t control the narrative, it will be written for you. But when it comes to China, the phrase “trust but verify” has added meaning.
And so it is, we are getting new numbers nearly every day. But along with those numbers, we’re getting conflicting information of who is putting out the information. Is it the Chinese government? Is it being put out by short sellers?
Baidu’s Transition Is Burning a Lot of Cash
Hailed as China’s version of Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google, Baidu’s online search business has come under pressure. In 2019, the company felt the effects of a slowing Chinese economy and increasing competition. Baidu has been slowly transitioning their business into areas such as artificial intelligence (AI), autonomous driving and the cloud.
But when a company like Baidu attempts to make these changes, it frequently requires a significant investment. As of the company’s third-quarter earnings report, these units were not profitable. And the business units are burning a significant amount of cash.
These are the underlying issues that InvestorPlace’s Nicholas Chahine may have been alluding to when he wrote in a recent article, “Even at the January highs, it [BIDU stock] was still almost 50% below its best. So immediately, this raises concerns over other issues that it may have had before this outbreak.”
Is BIDU Stock a Buy?
The coronavirus is going to be a headwind for Chinese stocks for quite some time. Major U.S. airlines are canceling flights to China for the foreseeable future. The Chinese economy will be affected. However, the immediate problem is that it may be impossible to understand how serious the crisis is. And that’s bad news for BIDU stock.
BIDU stock was already trailing behind some of the other Chinese stocks over the last 12 months.
Until there is real transparency about the depth and breadth of the crisis, it will be tough for investors to have anything to go on besides technical analysis. Baidu stock may not be seriously ill, but right now there are certainly more healthy Chinese stocks for investors to choose from.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
