Chinese (FXI) tech company Baidu (BIDU) will be announcing its second-quarter earnings results on August 19 after the market closes. Analysts expect BIDU to post revenue of $3.66 billion in the quarter, a fall of 2.2% year-over-year. Its earnings are expected to fall a massive 71% to $0.87. Baidu reported sales of $3.74 billion and EPS of $3.03 in the second quarter of 2018. Will BIDU be able to beat analysts’ estimates in the second quarter this year? Let’s see how it’s performed against estimates in the past.
BIDU reported EPS of $0.40 in the first quarter, 4.8% below the estimate of $0.42. In the fourth quarter of 2018, its EPS of $1.96 were 12% higher than the estimate of $1.75. Baidu’s EPS of $2.75 in the third quarter of 2018 were 13.6% higher than the estimate of $2.42, and its EPS of $3.03 in the second quarter of 2018 were 26.8% higher than the estimate of $2.39.
Baidu stock has gained close to 9% today
Shares of Baidu have risen close to 9% in early market trading today. Investors were most likely buoyed by the Sina’s (SINA) stellar second-quarter results, which it released earlier today. Chinese tech giants Alibaba and JD.com also reported their second-quarter results last week, easily beating Wall Street’s estimates.
Despite the recent rally, BIDU has burnt significant investor wealth. The stock has lost 34% year-to-date. Baidu investors have lost 62% since May 2018. In early August, Baidu stock fell below $100 for the first time in five years. Baidu is known as China’s Google and is the leading search engine platform in the country.
However, according to a Reuters report, ByteDance is looking to launch its search engine in China, which will mean more competition for Baidu. This new development could affect Baidu’s sales going forward. BIDU is also struggling with slowing revenue due to the trade war and a sluggish domestic economy. The sluggish economic environment has resulted in fewer company advertisements on its platform.
A slowdown in revenue has hugely affected Baidu’s bottom line, driving the stock significantly lower. Analysts expect Baidu’s sales to rise just 0.1% in 2019. This rise would reflect a 59.3% decrease in earnings for Baidu this year. BIDU has a market cap of $36.4 billion, which is significantly lower than its valuation of $100 billion in May 2018.
Will Baidu’s rally be sustainable? The company could return to revenue growth in 2020, as its sales are estimated to rise 14.4% to $17.41 billion. Analysts expect its EPS to rise 59.4% in 2020 as well. Baidu stock is trading at a forward PE multiple of 16.4x, which indicates that the stock is undervalued given its 2020 earnings.