Baidu (NASDAQ:BIDU) is often called “China’s Google” by investors but it never really was. Over the last five years, shares of Google parent Alphabet (NASDAQ:GOOG) are up 197%, twice the gain of the average S&P stock. BIDU stock is up just 12%.
The comparison would have been better, save for a hard fall in BIDU stock that began in mid-February, taking the shares from nearly $340 to today’s opening around $216.
That’s a market cap of just under $73 billion, and a price to earnings ratio of under 22. It’s also 4.4 times last year’s sales of $16.4 billion.
A Closer Look at BIDU Stock
While Baidu is considered one of China’s “Cloud Emperors” alongside Alibaba (NASDAQ:BABA) and Tencent (OTCMKTS:TCEHY), it recorded less than $1 billion in capital spending during its most recent fiscal year.
Running China’s leading search engine isn’t as profitable as it seems. Revenue has been stalled at around $18.4 billion for three years. The only real growth in 2020 came from currency appreciation.
What Baidu does instead are spin-offs. Iqiyi (NYSE:IQ), the video company, is a Baidu spin-off. The company spun-off food delivery, fintech, and autonomous driving units. It’s raising outside capital for its artificial intelligence unit.
This has built CEO Robin Li a fortune of $12.2 billion, but investors must follow the spin-offs to get a full taste. There are indications investors tiring of the game. The comapny’s recent opening on the Hong Kong exchange was underwhelming.
Baidu is facing a crackdown from China’s government, which is seeking more control over the sector. It has pledged to obey new rules which have western observers calling on the U.S. to revive the Cold War.
This could force the de-listing of Baidu and other Chinese companies if they refuse to play by U.S. rules, something China’s government refuses to allow.
Business tensions were increased when China abruptly shut down western clothing sites which had objected to its policy in Xinjiang. The government is also willing to cut off corporate critics on Hong Kong and Taiwan and is increasing its military budget.
The Bottom Line
There remain analysts who are bullish on Baidu. Baidu is continuing to sign contracts with government-run entities focused on its artificial intelligence software.
The recent fall in the stock may be largely attributed to the collapse of Bill Hwang’s Archegos Capital. This had Hwang banker Morgan Stanley (NYSE:MS) tripling its own position in Baidu common to 5.8%.
This means that if you’re going to get into Baidu, now might be a good time. The current price may be disregarding its cloud and AI businesses, for instance.
Big investors make their biggest profits when they buy stocks that are out of favor.
Right now, Baidu stock is out of favor, but Cathie Wood’s Ark Innovation ETF (NYSE:ARKK) recently made a big buy on Baidu. Wood is rapidly becoming tech’s Warren Buffett, her buys scrutinized to identify winning stocks.
If you’re interested in owning Baidu, then, now would be a good time to buy it. Just know that it’s not the Chinese Google, but something far more complex and inscrutable.
At the time of publication, Dana Blankenhorn directly owned shares in BABA.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.