Baidu stock plunges to 3-year low ahead of Q1

Baidu Inc. (BIDU) stock plunged to a 3-year low of $150.02 on Monday ahead of its earnings report for the first quarter of 2019 on Thursday. The Internet search platform has been struggling to balance growth initiatives and increasing costs. This along with investments in non-core areas led to a plunge in the bottom line numbers despite higher revenues.

The company, which is often referred to as China’s Google, is likely to face a dip in the bottom line during this year and the next due to the continuation of new areas investment. As per long-term outlook, cost escalation could compress the margins that in turn will pressure on the profitability for the next three years.

In addition, Baidu has been facing heavy investments requirements due to the diversification of its business from mobile internet to the smart home, smart transportation, cloud, and autonomous driving markets. The company expects the investments to bear fruit and accelerate its revenue growth in the coming years as it has a balanced portfolio for short-term, medium-term and long-term returns.

However, these investments in non-core areas like cloud, content and short video could weigh on the quarterly earnings. The company has been making investments for regaining its position in the Chinese market in response to the slowdown in the search service business.

Analysts expect the company’s earnings to plunge by 71.80% to $0.53 per share while revenue will jump by 17.70% to $3.55 billion for the first quarter. In comparison, during the previous year quarter, the company posted a profit of $1.88 per share on revenue of $3.01 billion.

The company has surprised investors by beating analysts’ expectations in the past four quarters. It is expected that Baidu could report upbeat results for the first quarter. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $212.51 per share in the next 52 weeks.

Also read: iQiyi Q1 earnings preview

For the fourth quarter, the company reported a 50% drop in earnings due to higher costs and expenses as well as an increase in capital expenditures, despite a 15% growth in revenues. Baidu App daily active users reached 161 million in December 2018, increasing 24% year-over-year.

Baidu Smart Mini Program monthly active users reached 147 million in December 2018, up 30% sequentially. Baidu’s subsidiary iQIYI added 36.6 million subscribers in 2018 to reach 87.4 million at year end, further solidifying their leadership in original entertainment blockbuster content.

For the first quarter, Baidu expects revenues to be in the range of $3.42 billion to $3.60 billion, representing year-over-year growth of 12% to 18%, or 18% to 24% excluding revenues from announced divestitures.

Shares of Baidu opened lower on Monday and is trading in the red territory on the Nasdaq. The stock has fallen over 43% in the past year and over 11% in the past three months.

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