Baidu Ups Its Share Repurchase Game

Baidu (NASDAQ:BIDU) announced on Dec. 8 that it was increasing its share repurchase program to $4.5 billion. The BIDU stock buyback is effective through the end of 2022. 

An Apollo self-driving car from Baidu (BIDU) drives around California.

Source: Sundry Photography /

That’s good news for those who plan to own the shares for a long time. Here’s why. 

BIDU Stock Remains Cheap

I last wrote about the Chinese search engine in November 2019. At the time, it was trading around $117. Since it was cheaper than it had been since 2013, I argued that it was time to buy back plenty of its stock

In the first nine months of 2019, the company has repurchased $1.2 billion in Baidu stock. Here’s why it ought to do more,” I wrote on Nov. 19, 2019.

“According to the company’s Q3 2019 press release, Baidu, so far in fiscal 2019, has repurchased $397 million in BIDU stock under its 2019 share repurchase program and $778 million under its 2018 share repurchase program.”

Given its free cash flow generation and the cash it has on its balance sheet, I thought the company was being incredibly conservative with its share repurchases. It was the perfect time to be buying back stock. 

“By buying back its stock from $117 to $200, it’s putting its money where its mouth is. If it could buy back its stock at $232, it’s a no-brainer at more than $100 less,” I wrote.

It Needs to Get Moving

InvestorPlace columnist Luke Lango said at the time that Baidu needed to reignite its sales, margins, and profit growth. I agreed with him. 

So how has the company done since November 2019? Because Covid-19 put a dent in its business, its sales growth hasn’t exactly been on fire, although it has turned positive. 

Its sales came in at $4.16 billion in the third quarter, 1% higher than a year ago and 8% higher than the previous quarter. In terms of cash flow, its business has done well, as its EBITDA, excluding some items, jumped 77% year-over-year and 29% versus Q2 to $1.34 billion. 

As for its Q3 EBITDA margins, they were 32%, five percentage points higher than in Q2 and 14 percentage points higher than a year earlier. 

Free cash flow, which is what companies use to do share repurchases, was $925 million in Q3, 29.5% higher than a year earlier. Excluding its 55% stake in iQiyi (NASDAQ:IQ), its free cash flow was $1.22 billion, 11.7% higher than a year earlier. 

“Our team executed in the third quarter with top line growth, resilient profitability and strong cash flow, a testament to the durability of Baidu’s business, despite China experiencing a second wave of COVID-19 in July,” said chief financial officer Herman Yu in the company’s Q3 earnings press release. 

Baidu needed to get its business going, and it has done that. 

What About Share Repurchases?

As the company noted in its Q3 earnings press release, it bought back $596 million of BIDU stock last quarter and $2 billion over the past two years. Unfortunately, I don’t have enough information to calculate what it paid for all of those shares.

I do know that from the first six months of the year to the end of June, it bought back $727 million of its stock at an average price of $106.13, earning an 80% return on its investment. 

Not bad. 

In May 2020, the company announced a $1 billion share repurchase program. In August, it increased the ceiling to $3 billion, and in November, it raised it again to $4.5 billion. In less than a year, it’s grown its share repurchase commitment by 350%. 

It seems like Baidu’s management and board are confident about the company’s outlook. 

Based on its trailing 12-month free cash flow of $3.17 billion and its enterprise value of $55.5 billion, Baidu’s current FCF yield is 5.7%. 

Considering how far BIDU stock has run in 2020 — it’s up about 50% in the last three months alone — that’s a relatively high yield.

Upping its share repurchase program by 350% over the past year suggests that Baidu is also pleased with the company’s performance. That’s excellent news for those who own BIDU stock.   

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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