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How Do the Net Margins of Baidu and Its Peers Stack Up?

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What led to the fall in Baidu’s net income and margins?

Baidu’s (BIDU) net income fell at a three-year CAGR (compound annual growth rate) of 13% in 2017. Its net income rose 4% in 2015 compared to 68% in 2017.

A fall in the company’s operating profit in 2016 led to a 62% fall in its net income in the year. Its net income amounted to 22.3 billion Chinese yuan in 2017. As a result, its net margin contracted from 67% in 2014 to 26% in 2017. However, its EPS rose at a three-year CAGR of 61% in 2017 due to triple-digit growth in 2015 followed by 68% growth in 2017. Its EPS fell 62% in 2016 and amounted to 63.7 yuan in 2017.

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Baidu’s net income rose 51% to 12 billion yuan in the six months that ended on June 30. The company’s strong operating profit growth led to its net income growth. Its net margin expanded from 21% in the six months that ended on June 30, 2017, to 26% in the six months that ended on June 30, 2018. Its EPS rose 49% to 34.1 yuan in the six months that ended on June 30, 2018. We’ll discuss the company’s net income projections in the last part of the series.

Peers’ net incomes and margins

Alphabet’s (GOOG) net income fell 6% to $22.5 billion in 2017. Its net margin fell from 27% in 2014 to 20% in 2017.

Alibaba’s (BABA) net income rose 44% to 83.2 billion yuan in fiscal 2018. Its net margin contracted from 46% in fiscal 2015 to 33% in fiscal 2018.

Tencent’s (TCEHY) net income rose 43% to 65.1 billion yuan in 2017. Its net margin contracted from 31% in 2014 to 27% in 2017.

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