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Is Baidu Stock Waking Up After A Long Nap?

Baidu (BIDU Stock Report) dominates the search engine market in China, just as Alphabet (GOOGL Stock Report) dominates search in the U.S. and elsewhere. China’s leading search engine has shown signs of life when it surged 8% in after hours trading after beating analysts estimates in Wall Street. 

Amid the pandemic, Baidu’s first quarter revenue fell 7% from a year earlier to $2.3 billion. This came as advertisers in travel, autos and healthcare cut back their ad spending. As we are aware, many businesses are struggling to cope with the challenges associated with travel restrictions and reduction in consumer spending.

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These businesses cut back on their ad spending, while some declared bankruptcy. “With the pandemic coming under control in China, offline activities are rebounding and Baidu stands to benefit from a restart of the Chinese economy,” said Robin Li, co-founder and CEO of Baidu, in a statement.

Despite reporting better than expected results, the revenue of its core search and news feed segment fell at a fast pace, sliding 13% from the same period last year. The consecutive losses of ad revenue in the past 3 years does tell us something. Baidu is struggling to compete with newer players in the market. So with the slight momentum picking up from Monday’s quarterly report, is BIDU stock still a buy?

Growth in iQiyi A Boost To Baidu Stock 

Video streaming platform, iQIYI (IQ Stock Report) weathered the macro headwinds by growing its revenue by 9% year-over-year. Like many other streaming platforms, iQIYI’s business model is a beneficiary from the stay-at-home order. This made it Baidu’s best performing subsidiary company. The highly positive results did offer some relief to Baidu’s investors when the advertising segment underperformed. This shows the importance of revenue diversification for Baidu, from advertising to video streaming and online games. 

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New Technologies Present New Opportunities

Baidu’s new AI businesses also fared well during the first quarter. Cloud, DuerOS, and Apollo all saw healthy business growth in Q1. Baidu has seen a rise in prominence, after utilizing its AI capabilities to assist the nation during the pandemic crisis. As part of the company’s social responsibility, Baidu Health provided tens of millions of free online doctor consultations. Such initiatives helped free up hospitals for critical emergencies. The virus has fostered a boom in online medical services, also known as Telehealth. Telehealth has the potential to be a new growth engine for Baidu, as the industry is projected to be worth nearly $30 billion this year in China alone.

Within the Mobile Ecosystem Group (MEG), average daily active users on the Baidu app continued to see robust growth, reaching 188 million. It was an increase of 27% year-over-year, fed by the synergy generated when search is combined with feed. Last week, Baidu announced that it will be actively promoting live streaming services in the second half of 2020. This is seen as a way to buttress the mobile ecosystem.

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The initiative aims to improve not only real time interactions between people, but also provide customers with valuable services. Baidu continues to improve its capabilities in this segment, by utilizing smart mini programs to provide a diverse range of services to users without leaving the app. The daily active users of Baidu’s mini program stands around 500 million.

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Rise Of Online Platforms Pose Threats To Baidu Stock

The pandemic has driven many consumers to spend more time on online entertainment platforms. Thus, advertisers followed this shift to some extent. The loss of advertising dollars to millenials oriented platforms like TikTok and Bilibili is a concern for Baidu investors. If Baidu is not taking swift and creative actions to draw the traffic back to its platform and search engines, it risks losing its position in the advertising space.

With more millennials joining the working force today, they will be the new focus of advertisers. After all, millennials are stereotyped to be keen to spend. Companies need to find ways to target them through the most effective channels. Thus, adverts in content feeds are increasingly becoming the preferred channel for advertisers in comparison to search and video. This is where Baidu failed to attract advertisers, leading to lower ad revenue obtained.

The Beijing-based search group has rolled out a succession of short-video apps in recent years, hoping to expand its user base. Unfortunately, they have failed to catch the ranks of ByteDance’s TikTok and Tencent-backed Kuaishou.

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What Does The Future Hold For Baidu?

Even though the company is struggling with its core business, it does have the potential and ability to make a comeback. It is worthwhile to note that the company continues to perform in the cloud computing space, a fast growing industry in China and globally. Furthermore, its various initiatives in AI, including a trial of self-driving taxis in China, could provide yet unknown breakthroughs.

It is tempting to write off a company like Baidu in the face of newer, more glamorous rivals. But the company continues to have a number of tricks up its sleeve. Would it be fair to think of Baidu as a search company? There may be more to it than meets the eyes.

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