AI-Driven Baidu’s Bottom-Line Beat Drives Up Share Price

Expansion of its AI and Cloud tech capabilities propel the company forward—and the stock higher.

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Baidu’s growing AI ecosystem and increasingly diversified business segments has not been lost on investors; shares have more than doubled in the past few months. At record highs, price targets have been raised, most recently by Mizuho Mizuho analyst James Lee to $350 from $325. The company’s core business is on track for a “strong recovery,” Lee told investors in a note, citing management’s confidence on Baidu’s “strong position” in smart transportation and autonomous driving.

Baidu’s bottom-line beat also did not go unnoticed by the Street.

In a statement after the markets closed Wednesday, China’s largest search engine said its revenue in the three months ending December grew 5% year-over-year to $4.64 billion. Earnings reached $3.08 per share, well ahead of the estimated $2.61.

The main driver for the company’s revenues in the quarter was Baidu Core, which hit $3.54 billion, a 6% rise from a year earlier.

Over the past few months, Baidu has been on a wild trading run thanks several key milestones and developments.

As part of its diversification beyond ad revenue, in November, Baidu struck a deal to acquire the video-based entertainment livestreaming business YY Live from JOYY (Nasdaq: YY) for $3.6 billion. The deal includes YY mobile app, YY.com website and PC YY.

Baidu’s video streaming platform iQiyi (Nasdaq: IQ), sometimes referred to as the Netflix (Nasdaq: NFLX) of China, posted its fourth-quarter results after the markets closed. IQ’s loss per share of 32 cents came in better than expected, but its revenues of $1.1 billion missed the $1.16 billion forecast, according to Benzinga.

For decades, Baidu has been known for its online marketing and ads within its web search results. Now, as the internet giant has diversified, it is reaping gains from its AI-driven businesses. In the fourth quarter, Baidu’s AI cloud and AI solutions segment propelled 67% year-over-year to reach an annualized run rate of $2 billion.

For the first half of 2020, Baidu was ranked first in China’s AI public cloud market, a report from global market intelligence firm IDC shows. That marked the third time Baidu has clocked in first on IDC’s list.  The market for AI cloud services in China was valued at $166 million USD in 2019. IDC projects a compound annual growth rate of 93.6% between 2018 and 2024.

In January, Baidu said it was teaming up with Chinese automaker Geely (OTC: GELYF; HKEX: 00175) to make smart electric vehicles. In the vehicle space, Baidu also recently became the first Chinese company to score a permit in both California and China to test driverless vehicles without a safety driver behind the wheel on public roads. Meanwhile in China, Apollo now holds 199 autonomous driving licenses.

Baidu’s autonomous driving technology, Apollo Self Driving (ASD), has been gaining momentum, having signed strategic partnerships with 10 leading local and multinational automakers on services including HD maps and automated valet parking to power their new passenger vehicles.

Last month, Bloomberg reported that Baidu had picked banks for its planned Hong Kong secondary listing that could net at least $3.5 billion.

“As we enter 2021, Baidu is well positioned as a leading AI company with strong Internet foundation to seize the huge market opportunities in cloud services, autonomous driving, smart transportation, and other AI opportunities,” Robin Li, the co-founder and chief executive officer of Baidu, said.

He added, “We also hope to capitalize on our huge Internet reach with more non-marketing services.”

In the first quarter, Baidu expects to generate revenue in the range of $4.0 billion to $4.4 billion, representing year-over-year growth of between 15% and 26%.

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