- Baidu dominates Google's final unconquered territory.
- Baidu's prospects are interlinked with China's economic prosperity.
- Baidu stock presents a good opportunity for brave investors to buy low and sell high later.
Despite the fact that Alphabet Inc-C (NASDAQ:GOOG) is a global company, there is one key market which Sundar Pichai and co haven't been able to dominate. I am of course talking about China. With approximately 20% share of the world's web surfing population, Google's lack of access to this region is a thorn in their side.
Baidu (NASDAQ:BIDU) has a set-up similar to its Western rival. They diversify their interests, account for 70% of the Chinese search engine market, and even have their own solution to the autonomous car industry.
If Baidu were to be in Europe, investors would have been wrestling to invest. However, Baidu's prospects are interwoven into the fabric of the Chinese economy. And after China enjoyed the limelight of being the world's fastest growing economy and the 'world's factory', growth is slowing and the baton has been passed on to India.
China's economic situation has gotten so desperate that their government has had to enforce special measures. For instance, there have been limits placed on overseas purchases, and money which can be moved out of the country ($10000). Moreover, propaganda campaigns are being used to downplay the economic situation. If consumer spending reduces as a result of reduced confidence in the economy, China risks dipping into a recession.
This is the crossfire which Baidu finds themselves in.
Baidu Stock Shoots Up Over Qiyi
Baidu stock enjoyed a surge in demand after receiving an offer to buy their 80.5% stake in online video platform iQiyi. The deal is estimated to be worth $2.25 billion. The costs of running iQiyi are high, and investors hope that the deal going through would mean a reduction in Baidu's expenses going forward. Interestingly, Baidu is such a heavyweight in China that iQiyi would 'have to' form some kind of partnership.
Despite the news which sent Baidu's stock skyrocketing by 8%, things aren't looking too great. You see, Baidu's stock has suffered a drop of 19.21% year-to-date and after entering 2016 with a bang at $187 (January 5th), the stock has dropped to $152.73 as of writing. It is worth noting that this is partly due to a cornucopia of geopolitical and economic factors in China.
However, the company has some strengths which could provide investors with impressive returns once the Chinese economy bounces back.
For instance, like their American counterpart, Baidu is developing their own range of autonomous vehicles. Plus, due to the comparatively lax laws in China, Baidu are likely to bring the vehicles to a mass market sooner than Google, and potentially sell the technology to car manufacturers. It is also worth noting that autonomous technology provides heavyweights like Baidu with more opportunities to serve ads, and plugin some of their own services.
For instance, Baidu dominates the online to offline sector in China. And autonomous cars are likely to provide more opportunities to increase revenue in this area, or even create new streams of income.
Notably, Baidu generally outperforms competitors with regard to revenue growth, a fact which is clearly highlighted in Amigobulls' Baidu stock analysis. Top financial services establishments such as Morgan Stanley, Goldman Sachs and TheStreet are bullish on Baidu stock.
Baidu stock price is down by 19.21% year-to-date (YTD) against a plunge of 13.4% and 8.8% in the NASDAQ and S&P 500 Index, respectively. The company’s shares have an average daily trading volume of 3.73 million and a 52-week range of $100-223. In 2016, Baidu stock price hit a high of $187 on January 5 and a low of $140 on February 9. Baidu stock closed the last trading day (February 12) at $152.73.
Investors looking to buy Baidu will have to gamble on the Chinese economy getting back on track. It is worth noting that the Chinese government have a very tight leash on the country, and will use their powers to get everything back on track. China is highly unlikely to slip into a recession.
Investors willing to roll the dice now will reap the rewards when Baidu stock price shoots up after the cloud of uncertainty lifts.