Baidu Inc. Shares Surge After Earnings Beat!
The Effect Of Delisting Of Chinese Companies On BIDU
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Stock Options Made Easy “Earnings Predictions” Members Up 270%!
Will This Continue?

by Ian Harvey
May 21, 2020

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Baidu's stock popped after the Chinese tech giant posted its first-quarter earnings on Monday. Its revenue declined 7% annually to 22.5 billion yuan ($3.2 billion) but beat expectations by $90 million.

The Senate overwhelmingly approved legislation Wednesday that could lead to Chinese companies such as Baidu Inc. being barred from listing on U.S. stock exchanges amid increasingly tense relations between the world’s two largest economies.

And, Stock Options Made Easy “Earnings Predictions” Members are up 270% potential profit based on a CALL OPTIONS trade.


Baidu Inc (NASDAQ: BIDU)

Chinese tech company Baidu has reported solid first quarter earnings results, with Q1 Non-GAAP EPS of $1.25 beating consensus expectations by $0.69. Meanwhile revenue of $3.18B dropped 7% from a year ago, but easily beat the $3.1 billion consensus. GAAP EPS of $0.00 fell short by $0.23.

Shares spiked 8% in Monday’s after-hours trading following earnings, after already making a strong 7% gain during the day.

And, in early trading Tuesday, shares of Baidu continued to surge, rising more than 12% before turning around and giving back more than half of those gains.

Shares are currently trading down 15% on a year-to-date basis.

YOU NEED TO BE IN TO PROFIT!

“Earnings Predictions” Members executed a trade on Baidu on Monday morning, May 18, 2020 at a cost of $4.60; and the sell value of the option hit $16.88 – a potential profit of 270%.

The recommended options trade - **Buy the BIDU JUN 19 2020 105.000 CALL at approximately $4.00. (Actually bought for $4.60)

The Recommended Trade…..

Baidu Inc (NASDAQ: BIDU), the China-based search giant and diversified technology play touted as China’s Alphabet, will report earnings after the market closes. The consensus earnings estimate is for $0.64 per share on revenue of $3.13 billion; but the Whisper number is higher at $0.73 per share.

Consensus estimates are for year-over-year earnings growth of 10.34% with revenue decreasing by 12.91%.

Baidu reported fourth-quarter 2019 non-GAAP earnings of $3.81 per share, which surpassed the Consensus Estimate by 10 cents.

Revenues of RMB28.9 billion ($4.15 billion) were up 3% sequentially and 6% year over year.

BIDU has shown annual earnings growth of 8.56% over the last five years, and looking ahead analysts expect the company to grow profits 1.33% per annum the next five years. 

Influencing factors.....

Short interest has decreased by 5.2% since the company's last earnings release.

The company’s efforts to strengthen the mobile search engine and AI technologies are anticipated to have been key catalysts for top-line growth. Strong focus on leveraging the AI platform has been aiding it to provide an improved user experience.

Enhanced AI skills and DuerOS-supported smart devices portfolio that includes Xiaodu smart speakers are expected to have bolstered Baidu’s user base in the first quarter.

Also, the company’s strengthening presence in the autonomous driving space has been acting as a key catalyst. Baidu’s autonomous driving licenses are expected to have aided the performance of the open-source autonomous vehicle technology platform, Apollo.

As well, strengthening mobile ecosystem is expected to have contributed to growth in average daily active user base of the Baidu App.

Strong iQIYI segment — which offers online entertainment services — is expected to have aided the company’s performance.

Of the 14 analysts who cover the stock 9 rate it Strong Buy and 5 rate it Hold.

So.....

Baidu shares have fallen about 5% over the past month, while the S&P 500 index has been roughly flat. The Chinese Internet search company, at the end of March, offered some optimism, saying it expected its ad business would recover from late in Q2.

The company which has increased investments in its core search business, cloud and artificial intelligence, has had various business segments affected due to the coronavirus. But the company has noticed some improvement in its business (quarter over quarter).”

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Details……

“With the pandemic coming under control in China, offline activities are rebounding and Baidu stands to benefit from a restart of the Chinese economy” said Robin Li, Co-founder and CEO of Baidu.

Li pointed out that in March, a month after the peak of COVID-19 new cases, Baidu’s traffic remained robust with Baidu App DAUs (daily active users) reaching 222 million, up 28% year over year, in-app search queries up 45% and feed time spent up 51%.

“Given COVID-19 headwinds, Baidu focused on quality revenue growth and continued to be disciplined with spending ROI, to maximize long-term shareholder value,” comments CFO Herman Yu.

Baidu generated 63% of its revenue from its online ads during the quarter, down from 73% a year ago. The rest of its revenue came from its "other" businesses -- which include iQiyi, Baidu Cloud, and its smart speaker business. iQiyi generated 92% of that segment's revenue.

There were a lot of positive signs from Monday’s report.....

Adjusted earnings and operating profit more than tripled, also naturally vastly exceeding market expectations.

A lot of things are going right at Baidu, particularly in mobile. Baidu App's daily active users hit 222 in March, up 28% over the past year with in-app search queries soaring 45%.

The growth is accelerating from the prior quarter's pace, and that's going to come in handy when the headwind of China's weak online advertising market turns into a tailwind.

Moving Forward.....

Baidu's making the most of its stock trading 55% below where it was at end of 2017. Baidu's stock has had tough competition in online ads, a slowdown in the Chinese economy, an escalating trade war, and the COVID-19 crisis. Its board has authorized another $1 billion in repurchases, and it's good for the money, with more than $20.7 billion in cash and marketable securities on its balance sheet.

Looking forward to the second quarter of 2020, Baidu expects revenues to be between $3.5 billion) and $3.9 billion, representing a growth rate of -5% to 4% year over year, which assumes that Baidu Core revenue will grow between -8% to 2% year over year.

But the company warned that the Covid-19 situation in China is evolving, and business visibility is very limited. This means the forecast is ‘subject to substantial uncertainty’ says Baidu.

The Effect of Delisting.....

The Senate overwhelmingly approved legislation Wednesday that could lead to Chinese companies such as Baidu Inc. being barred from listing on U.S. stock exchanges amid increasingly tense relations between the world’s two largest economies.

The bill, introduced by Senator John Kennedy, a Republican from Louisiana, and Chris Van Hollen, a Democrat from Maryland, was approved by unanimous consent and would require companies to certify that they are not under the control of a foreign government.

U.S. lawmakers have raised red flags over the billions of dollars flowing into some of China’s largest corporations, much of it from pension funds and college endowments in search of fat investment returns. Alarm has grown in particular that American money is bankrolling efforts by the country’s technology giants to develop leading positions in everything from artificial intelligence and autonomous driving to internet data collection.

The bill next heads to the Democratic-controlled House of Representatives for consideration.

Shares in some of the biggest U.S.-listed Chinese firms, including Baidu and Alibaba, slid Thursday in New York while the broader market gained.

Baidu shares were trading down 1.4% at $108.21 yesterday. The stock has a 52-week high of $147.38 and a 52-week low of $82.

MEANWHILE, CHECK OUT OUR SPECIALS

Analysts’ Reactions......

From the Street, Baidu scores a cautiously optimistic Moderate Buy consensus, with an average analyst price target of $148 (38% upside potential).

“We believe the shares are undervalued, as we estimate core EBITDA growing 23% in FY21. Target assumes 7x ’21E core EBITDA vs. our 10x target multiple for Google core search” pointed out Oppenheimer analyst Jason Helfstein, as he reiterated his buy rating with a $155 price target (44% upside potential).

So…..

Baidu still has a dominant position in search, and a lot of the negative trade tensions, hobbled economy, and COVID-19 setbacks appear to be clearing in the world's most populous nation. Baidu isn't back to where it was in its prime, but it is taking some steps in the right direction.

Are You Ready To Get On-board With An Baidu Options Trade?

Will Baidu Continue To Rise?

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Do You Wish To Be Part Of This Action?

Join us here at Stock Options Made Easy, and find out our trades moving forward.


AS ALWAYS THE DECISION IS YOURS!


An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.

It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!


Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


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