Baidu (BIDU Stock): Q4 earnings outlook

Baidu, Inc. (#Baidu), a China-based tech behemoth specializing in internet services (Baidu Browser and Cloud, Baidu Baike and Baidu Knows, Baidu Map etc), social networking sites (Baidu Tieba, Baidu Space, video streaming platform iQiyi and Haokan) and AI technologies (Baidu Brain, Apollo smart driving system, Apollo Go robotaxi, PaddlePaddle deep learning platform, Duer virtual AI assistant app and Baidu Kunlun 2 AI chip) with a market cap of over $53 billion, is scheduled to release its Q4 and fiscal year 2021 financial results on 1st March (Tuesday), before market open.

Fig.1: Reported Sales and EPS versus Analyst Forecast for Baidu. Source: money.cnn

2021 was not a good year for Baidu, Inc. Although reported sales performed on par with consensus estimates, the company’s earnings per share (EPS) fell more than 35% below analyst expectations during the second and the third quarter. This could have been due to mounting regulatory pressure  (including antitrust laws), budget slashing on advertisement by businesses during the pandemic, some investments that have yet to be proven effective (eg. driverless cars), an increase in research and development expenses, increased competition among peers, net loss in short video investment, etc. Furthermore, downsizing the number of staff and delayed payment of bonuses worsened the overall outlook of the company.

Following near-term ad industry weakness and some macro headwinds, consensus outlook for the upcoming announcement remains mild. It is estimated that reported sales will be at $32.3b, up 1.25% q/q and 6.6% y/y, whereas EPS is expected to hit $9.17, down 37.4% from the previous quarter and down 54.3% from the same period last year.

Relentless innovation in AI cloud, intelligent driving, mobile ecosystem and other growth initiatives, as well as mass market share in the cloud computing market may serve as a tailwind to the company in the longer term. Baidu has also ventured into the metaverse, however, as stated by vice president Ma Jie, it is “still in its infancy and there’s still a long way to go,” thus “requiring more collaborations (more investments?) to build the infrastructure collectively”.

Technical analysis

Technically, the #Baidu share price gapped low at $138.14 following the start of the Ukraine crisis last Thursday, the lowest level since January 28. However, the selling pressure was short-lived and the company’s share price managed to recoup its losses and closed the week a mere -0.3% from its open price. To date, the #Baidu share price remains 30% below the median estimate ($219.28) offered by analysts.

The 100-day SMA above serves as the nearest resistance. Breaking above the dynamic resistance may open up bullish opportunities for the price to continue testing the resistance at $160.80 (FE 61.8%), and psychological level $170. On the other hand, the lower trend line of ascending channel serves as the nearest support. A candlestick that closes below the line may trigger more selling pressure, pushing the price towards the next support at $140.30 (FR 78.6%) and last  December’s low at $131.98.