Why Did Baidu Stock Jump 6% Last Week?



Baidu (NASDAQ:BIDU) stock gained 6.0% last week. The stock finished ahead of Alibaba (NYSE:BABA) at 4.8% and the S&P 500 at 3.2%.

Baidu stock rose as investors welcomed the revision to its fourth-quarter guidance. The company raised its revenue outlook for the fourth quarter ending in December to $4.1 billion–$4.2 billion. Previously, Baidu expected its fourth-quarter revenue to be $3.8 billion–$4.0 billion. For the fourth quarter of 2018, Baidu’s revenue was $4.0 billion, which exceeded the consensus estimate by about $170 million. The consensus estimate calls for revenue of $4.1 billion in the company’s coming fourth-quarter report. The estimate indicates that Baidu is on track to beat the expectations if its actual revenue is at the midpoint of the guidance.

Alongside the revenue outlook revision, Baidu provided profit guidance for the fourth quarter. The company expects to post a net profit of $0.89 billion–$0.97 billion.

Article continues below advertisement

Baidu stock jumps amid improving advertising business

Baidu didn’t explain why it decided to hike its revenue outlook. However, investors celebrated the move. They think that the company’s core advertising business is improving.

Baidu derives most of its revenue from advertising. In the third quarter, advertising contributed 73% of the company’s total revenue. However, Baidu’s advertising business has struggled for a long time. The revenue from the advertising business fell 9.0% YoY (year-over-year) in the third quarter. There was a similar decline in the second quarter.

Baidu stock has gained 22% since the company reported its third-quarter results on November 6. However, the stock has fallen 24% over the past 12 months.

China’s slowing economy and intensifying competition from Alibaba, Tencent, and TikTok parent ByteDance have put pressure on Baidu’s advertising business. The company’s advertising business is still recovering from the 2016 crackdown on illicit medical advertisements. Due to the crackdown, Baidu kicked out many advertisers, which caused its advertiser base and advertising sales to shrink.

Although advertising is Baidu’s main revenue source, the company is working to diversify its business outside the advertising market. For example, Baidu has ventured into providing cloud computing and making smart speakers. The company is one of the world’s top smart speaker companies alongside Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL).

Delayed earnings report

Baidu pushed back the date for its fourth-quarter earnings report. Now, the company plans to release the results after the market close on February 27. Previously, the company planned to release the results on February 6. The company delayed its earnings results as Chinese businesses grapple with the outbreak of the deadly Wuhan coronavirus. Baidu has extended the new year holiday for its staff. The company asked some of the staff to work from home in a bid to control the spread of the contagious virus.

Last week’s gain leaves Baidu stock up 3.6% year-to-date.


More From Market Realist