Baidu Stock: The Current Dip is an Opportunity

Posted On November 6, 2017 2:41 pm

Baidu stock fell after the company gave less-than-expected guidance for the fourth quarter. However, we believe that the stock should be bought on the current weakness, as market overreacted and ignored the company’s excellent performance in the quarter and growth drivers for the future. Baidu more than doubled its profits in the third quarter. Revenue in the period increased by 28%. Baidu’s online marketing customers increased by 3% as a result of the AI features that were added to the marketing tools.

Baidu is monetizing its customer base pretty impressively. Revenue per customer in the quarter increased by 31% in the period.

Artificial Intelligence remains the company’s biggest strength. Baidu is firing on all cylinders to develop AI-assisted platforms to make tools and voice-based programs to for driverless cars. Baidu recently revealed DuerOS, the AI-based conversational platform. The platform is open for developers and third parties for the development of programs and apps which feature AI-based conversations and assistance. Driverless cars are expected to have voice-based control systems in the future. According to an estimate by IDC, 27% of homes and 51% of cars will be voice-powered by 2020. This shows that Baidu is moving in the right direction.

Baidu Inc recently entered into a partnership with NVidia under which both companies will join hands to work on Baidu Cloud and Drive PX for self-driving cars. The Apollo program of Baidu has over 50 partners around the world, including FAW, Microsoft, Chery, Changan, Great Wall Motors, and Bosch. Baidu’s PaddlePaddle system is also getting a lot of attention. The system is an open source deep learning platform for autonomous systems.

Baidu will soon become a major competitor for Netflix and YouTube in China. Its iQiyi video platform has a whopping 160 million daily active users on mobile. IQiyi is facing some challenges amid growing content costs and tough competition from Alibaba’s Youku Tudou and Tencent. But the mere size of Chinese video market presents a lot of growth opportunities for the platform. An estimate suggests that online video market in China will grow at a CAGR of 30% through 2020.

Macquarie Group’s analyst Wendy Huang rejected the market’s overreaction after Baidu’s quarter results and maintained her “Outperform” rating for Baidu stock and a $305 price target.

Related: Here’s Why the Bears Are Wrong About This Firm

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