Earnings preview: Challenges galore as Baidu braces for a weak Q4

The Chinese tech industry is probably on the threshold of a paradigm shift, with new equations emerging amid growing competition. Among the top players, Baidu (BIDU) is currently on shaky grounds and faces the risk of losing its dominant position as the leading internet search engine in the Chinese language.

The company, which is often dubbed as China’s answer to Google (GOOG), will be reporting financial results for the fourth quarter on Thursday after the market closes.  It is widely expected to report earnings of $1.79 per share for the quarter, which represents a 22% decline from the same period a year ago. The estimate for revenue is $3.88 billion, down 7% compared to the fourth quarter of 2017.

The company, dubbed as China’s answer to Google, will be reporting results for the fourth quarter on Thursday after the market closes

Earlier, the management had issued below-consensus revenue estimate for the December quarter while reporting the third-quarter results that beat analysts’ forecast. In the third quarter, earnings rose to $2.77 per share on revenues of $4.11 billion.

Also see: iQiyi to post Q4 earnings on Feb 21

Though Baidu has a history of beating Wall Street forecasts, the trend might not be sustained this time considering the changed market scenario and the slowdown in the Chinese economy. With WeChat, the multi-purpose messaging app from Tencent, all set to launch its own search service, Baidu’s market share could come under pressure. Once it hits the cyberspace, WeChat will become as big a threat to Baidu as the proposed re-entry of Google and Bing into the Chinese market.

Complementing the negative view is the growing concerns that Baidu is no longer a public search engine where unbiased search results are delivered. Rather, it allegedly operates as a search engine for its own sponsored content.

That the stock is yet to recover from the recent multi-year lows is a positive factor when looking at it from an investment perspective. The stock seems to have hit a bottom. After rising to a record high and holding steady in the first half of last year, the shares suffered a series of selloffs in the second half marked by steep intra-day falls. On Tuesday, they traded about 31% lower compared to the levels seen a year ago.

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