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Baidu stock has declined more than 70% from its former all-time highs.
Though BIDU's AI business is growing rapidly, the legacy business contraction holds back broad performance.
Once one of China’s most dominant technology companies, Baidu ((BIDU - Free Report) ) has struggled to find its footing in recent years.
The company remains a major player in search and is investing aggressively across artificial intelligence, cloud computing and autonomous driving. But those faster-growing businesses have yet to overcome weakness in Baidu’s legacy operations, while earnings expectations continue to move sharply lower.
That combination has pushed BIDU to a Zacks Rank #5 (Strong Sell).
Image Source: Zacks Investment Research
Baidu’s Core Business Remains Under Pressure
Baidu’s latest earnings results highlight the challenge.
Second-quarter revenue fell 4% year over year, while revenue from Baidu’s General Business also declined 4%. Most concerning was online marketing, historically the company's core profit engine, where revenue dropped 19% year over year.
There are certainly bright spots though, as AI Cloud Infrastructure revenue increased 50% year over year, while GPU Cloud revenue surged 283%. Baidu is also continuing to expand its Apollo Go robotaxi operation internationally.
But for now, these businesses aren't growing quickly enough to offset deterioration elsewhere. Even Baidu’s broader AI-powered business, while up 25% year over year, declined 8% sequentially during the second quarter.
BIDU Earnings Estimates Keep Falling
The most concerning signal for investors is the direction of earnings estimates.
The Zacks Consensus Estimate for current year earnings has fallen to $5.66 per share, down roughly 17% in the last 60 days. Next year estimates have also fallen more than 12% over that period.
Those downward revisions have earned Baidu a Zacks Rank #5 (Strong Sell).
Image Source: Zacks Investment Research
Should Investors Avoid BIDU Stock?
Baidu still owns valuable assets, and its rapid growth in AI Cloud shows that the company is not standing still.
The problem is that investors aren't yet seeing that AI momentum translate into consistent company-wide growth.
Revenue is contracting, the traditional advertising business remains under significant pressure and analysts continue to cut earnings expectations. Meanwhile, BIDU shares have spent years struggling to establish a sustained uptrend.
Until the growing AI businesses begin to meaningfully offset weakness in Baidu’s legacy operations and earnings estimates stabilize, investors may want to look elsewhere for technology exposure.
View the Zacks #1 Rank List
Bear of the Day: Baidu (BIDU)
Key Takeaways
Once one of China’s most dominant technology companies, Baidu ((BIDU - Free Report) ) has struggled to find its footing in recent years.
The company remains a major player in search and is investing aggressively across artificial intelligence, cloud computing and autonomous driving. But those faster-growing businesses have yet to overcome weakness in Baidu’s legacy operations, while earnings expectations continue to move sharply lower.
That combination has pushed BIDU to a Zacks Rank #5 (Strong Sell).
Image Source: Zacks Investment Research
Baidu’s Core Business Remains Under Pressure
Baidu’s latest earnings results highlight the challenge.
Second-quarter revenue fell 4% year over year, while revenue from Baidu’s General Business also declined 4%. Most concerning was online marketing, historically the company's core profit engine, where revenue dropped 19% year over year.
There are certainly bright spots though, as AI Cloud Infrastructure revenue increased 50% year over year, while GPU Cloud revenue surged 283%. Baidu is also continuing to expand its Apollo Go robotaxi operation internationally.
But for now, these businesses aren't growing quickly enough to offset deterioration elsewhere. Even Baidu’s broader AI-powered business, while up 25% year over year, declined 8% sequentially during the second quarter.
BIDU Earnings Estimates Keep Falling
The most concerning signal for investors is the direction of earnings estimates.
The Zacks Consensus Estimate for current year earnings has fallen to $5.66 per share, down roughly 17% in the last 60 days. Next year estimates have also fallen more than 12% over that period.
Those downward revisions have earned Baidu a Zacks Rank #5 (Strong Sell).
Image Source: Zacks Investment Research
Should Investors Avoid BIDU Stock?
Baidu still owns valuable assets, and its rapid growth in AI Cloud shows that the company is not standing still.
The problem is that investors aren't yet seeing that AI momentum translate into consistent company-wide growth.
Revenue is contracting, the traditional advertising business remains under significant pressure and analysts continue to cut earnings expectations. Meanwhile, BIDU shares have spent years struggling to establish a sustained uptrend.
Until the growing AI businesses begin to meaningfully offset weakness in Baidu’s legacy operations and earnings estimates stabilize, investors may want to look elsewhere for technology exposure.