Baidu (BIDU) has been one of the weakest major Chinese technology stocks this year. Whereas Baidu had fallen 34% year-to-date as of August 19, Alibaba (BABA) had risen 30% and JD.com (JD) had risen 51%. Event Tencent Music Entertainment, which separated from Tencent and went public last December, has fared better than Baidu.
Second-quarter results boost Baidu stock
However, Baidu recently cheered up shareholders. In the second quarter, Baidu recovered sequentially from a loss of $49 million to post a profit of $351 million, beating analysts’ estimate. Baidu stock jumped after the company posted the results.
Similar to Google (GOOGL) and Yandex, Baidu derives most of its revenue from advertising. In the second quarter, for instance, advertising contributed 73% of Baidu’s total revenue.
While Google’s and Yandex’s advertising sales rose in the second quarter, Baidu’s didn’t. Its ad revenue fell 9.0% YoY (year-over-year). The company’s advertising business has been under pressure amid China’s crackdown on online content. Caixin Global reports the crackdown has resulted in Baidu removing billions of ads and articles from its platform. As we’ve discussed previously, the massive content removal risks cutting traffic to Baidu platforms and impacting the company’s ad business.
Baidu diversifying outside advertising
Despite the pressure on Baidu’s core advertising business, there are plenty of reasons for advertisers to be hopeful about Baidu. The company is diversifying into new businesses outside ads, which should insulate it from weaknesses in the advertising market. The company has ventured into hardware, making smart speakers. It ranks as the third-largest smart speaker vendor globally, according to Strategy Analytics. Furthermore, the global smart speaker market presents a $23.3 billion revenue opportunity for Baidu, according to Allied Market Research.
Baidu has also developed self-driving vehicles and set its sight on the $285 billion ride-hailing market. The company aims to launch its ride-hailing service using self-driving vehicles in parts of China this year, Xinhua reports.
Baidu’s diversification push boosted its non-advertising revenue by 44% YoY in the second quarter. In comparison, non-advertising revenue increased 39% at Google parent Alphabet and 36% at Facebook (FB) in the second quarter. We believe Baidu’s non-advertising efforts could boost its stock further.