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Preview for Investors: Baidu’s Upcoming Q1 Earnings Report

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Baidu (NASDAQ:BIDU) plans to release its earnings results for the first quarter of 2020 after the market close today. Baidu is China’s top Internet search company with over a 65% share of the market. The company derives most of its revenue from providing digital advertising. Also, Baidu has cloud computing and smart speaker businesses.

Here are the three things investors need to know before Baidu’s earnings report.

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Baidu’s earnings outlook and expectations

During Baidu’s previous earnings report in February, its management forecast first-quarter revenue at $3.0 billion–$3.3 billion. The company’s forecast suggests a revenue decline of as much as 13% year-over-year. Baidu forecast a revenue decline due to COVID-19.

The coronavirus outbreak has hit businesses with additional expenses. As a result, many businesses have slashed their marketing budgets, which limits the revenue opportunities for advertising providers like Baidu. Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) are the other companies that revealed weaknesses in their advertising businesses amid the pandemic.

Wall Street expects Baidu’s upcoming earnings report to deliver revenue of $3.1 billion on an EPS of $0.56. In the first quarter of 2019, the company reported revenue of $3.59 billion, which beat the consensus estimate at $3.52 billion. However, the company’s adjusted EPS of $0.41 missed the consensus estimate at $0.44.

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China’s economic reopening bodes well for Baidu

Baidu’s earnings report will arrive as China gradually goes back to normalcy following months of economic shutdown amid the pandemic. Businesses reopening in China will help Baidu. The company relies on advertising for most of its revenue.

Advertising sales contributed 72% of Baidu’s total revenue in the fourth quarter of 2019. The company expects a revenue drop for the first quarter of 2020 due to the economic shutdown impacting its advertising spending.

China’s reopening could also boost the demand for Baidu’s cloud and device businesses. Currently, cloud and devices are small but promising businesses for Baidu. In devices, Baidu targets the lucrative smart speaker market. Baidu is one of the world’s top smart speaker companies alongside Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL).

Investing in Baidu stock

Baidu’s earnings report will arrive as the stock tries to bounce back from the pandemic sell-off. At $99.86 per share, the stock has pulled up 22% from its pandemic lows. However, the stock is still trading 20% down for the year. At this point, Baidu shares trade at a 36% discount to their 52-week high of $155.

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