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Is Baidu Poised to Gain from Driverless Car Unit Spin Off?
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Chinese search giant Baidu, Inc. (BIDU - Free Report) appears to be waiting for its driverless car unit to grow a bit more before it spins it off. According to co-founder and CEO Robin Li,“ When we think business is promising enough and it has reached a stage that running it independently or introducing more strategic investors would make sense, we will do that.”
Usually when a company spins off a unit, it’s an indication of bigger plans. The autonomous car industry is attracting a lot of attention lately and more innovation is in the offing, both by the biggest tech players and automakers and by smaller startups.
Notably, the company is developing an artificial intelligence platform that combines its cloud platform with NVIDIA’s self-driving technology to deliver things like HD maps, vehicle control, automated parking, and others for the Chinese market.
Factors that Tilt the Scales in Favor of a Spin off
An independent, fully functional self-driving car company under Baidu will be more appealing to investors and partners. It could also help the company streamline operations and enhance focus on its core online advertising business that currently faces tough competition.
Just like Alphabet’s (GOOGL - Free Report) Waymo, Baidu does not plan to manufacture a self-driving car on its own. Rather, it will focus on building self-driving technology for established automakers. This is indicative of the fact that technology companies are reluctant to sit idle and wait for the regulatory environment to turn favorable. Rather they would sell technology and continue to grow their business.
Year to date, Baidu has underperformed that Zacks Internet - Services industry, gaining 2.7% compared with the industry’s gain of 7.7%. We believe that some success in the driverless space could boost the company’s stock price in the future.
Raising Barriers to Entry
With this move, Baidu could also be gearing up to enter the ride sharing business in China currently dominated by Apple (AAPL - Free Report) backed Didi Chuxing.
This would raise entry barriers in the Chinese driverless ride-hailing space. However, outside China, Baidu will face tough competition from Waymo, Uber and Ford Motor Company (F - Free Report) .
Baidu plans a commercial role out of its self driving technology by 2018 and expects mass production to start by 2021.
Control and Competition to Remain
The autonomous vehicles space is currently one of the best places to be in as the technology is still under development. Also, early investors can sell their interest at a nice premium. But this market will be marked by significant regulatory control, stiff competition and also a tussle over who controls the data thus generated. It's unlikely to have a clear winner.
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>
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Is Baidu Poised to Gain from Driverless Car Unit Spin Off?
Chinese search giant Baidu, Inc. (BIDU - Free Report) appears to be waiting for its driverless car unit to grow a bit more before it spins it off. According to co-founder and CEO Robin Li,“ When we think business is promising enough and it has reached a stage that running it independently or introducing more strategic investors would make sense, we will do that.”
Usually when a company spins off a unit, it’s an indication of bigger plans. The autonomous car industry is attracting a lot of attention lately and more innovation is in the offing, both by the biggest tech players and automakers and by smaller startups.
Notably, the company is developing an artificial intelligence platform that combines its cloud platform with NVIDIA’s self-driving technology to deliver things like HD maps, vehicle control, automated parking, and others for the Chinese market.
Baidu, Inc. Revenue (TTM)
Baidu, Inc. Revenue (TTM) | Baidu, Inc. Quote
Factors that Tilt the Scales in Favor of a Spin off
An independent, fully functional self-driving car company under Baidu will be more appealing to investors and partners. It could also help the company streamline operations and enhance focus on its core online advertising business that currently faces tough competition.
Just like Alphabet’s (GOOGL - Free Report) Waymo, Baidu does not plan to manufacture a self-driving car on its own. Rather, it will focus on building self-driving technology for established automakers. This is indicative of the fact that technology companies are reluctant to sit idle and wait for the regulatory environment to turn favorable. Rather they would sell technology and continue to grow their business.
Year to date, Baidu has underperformed that Zacks Internet - Services industry, gaining 2.7% compared with the industry’s gain of 7.7%. We believe that some success in the driverless space could boost the company’s stock price in the future.
Raising Barriers to Entry
With this move, Baidu could also be gearing up to enter the ride sharing business in China currently dominated by Apple (AAPL - Free Report) backed Didi Chuxing.
This would raise entry barriers in the Chinese driverless ride-hailing space. However, outside China, Baidu will face tough competition from Waymo, Uber and Ford Motor Company (F - Free Report) .
Baidu plans a commercial role out of its self driving technology by 2018 and expects mass production to start by 2021.
Control and Competition to Remain
The autonomous vehicles space is currently one of the best places to be in as the technology is still under development. Also, early investors can sell their interest at a nice premium. But this market will be marked by significant regulatory control, stiff competition and also a tussle over who controls the data thus generated. It's unlikely to have a clear winner.
Currently, Baidu has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>