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Baidu (BIDU) to Boost Profits with New Augmented Reality Lab

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Augmented reality (AR) or virtual reality is the next big technological innovation along with artificial intelligence (AI) technology.

In a bid to further increase its share in the augmented reality (AR) market and thereby give a boost to its declining profits, Baidu, Inc. (BIDU - Free Report) recently launched an AR lab in Beijing.

Currently, the lab employs 55 people and will help the company to drive revenues through AR marketing. Going forward, the company will also focus on developing healthcare and education related technologies, thus expanding its revenue base.

Coming to the price performance, over the last one year, shares of Baidu underperformed the Zacks characterized Internet Services industry. The stock returned only 7.66% while the industry gained 16.36%.

Rationale Behind the New AR Lab

Baidu is under great pressure to expand its earnings as it is troubled by new government curbs on medical advertising. These curbs have reduced its core search business, resulting in a drop of ad customers by 16% in the last reported September quarter. Also, revenues of RMB18.253 billion ($2.737 billion) decreased 0.7% from the year-ago quarter.

The launch of the new lab is part of the $200 million investment announced by Baidu in September. The company aims to expand its revenue base and gear up its earnings with new investments related to developing AR technologies.

Also, the company is working with AR in China with various brands namely, Yum! Brands Inc's KFC, BMW and L'Oreal SA's Lancome among others.

Andrew Ng, the chief scientist overseeing Baidu's AI, AR and deep learning projects, believes that AR marketing is taking off. He added, “I feel like the abilities for AR have risen up in China faster than the Western world may be aware".

The company is expected to report fourth-quarter earnings on Feb 23. Baidu projects revenues to drop around 4.6% in the fourth quarter.                                                                                                             

Bottom Line

Baidu provides Internet search services in China. It also offers a Chinese language search platform for businesses to reach their customers.

With so much buzz created by AR/VR and AI technologies, all tech giants, right from Alphabet (GOOGL - Free Report) , Facebook and Apple (AAPL - Free Report) to Microsoft are scrambling to grab a share of this lucrative market. Just last week, Apple announced that it is working on AR/mixed reality headsets and has partnered with a renowned lens maker. Facebook acquired Oculus in 2012 to fuel the company’s ambitious VR efforts. At its Oculus Developer conference held last month, Facebook announced another $250 million investment to develop a VR content ecosystem.

The Chinese search engine has also started to focus on the development of these technologies. These are fast emerging as lucrative business opportunities. According to a recent IDC report, global revenues of the AR/VR market are expected to grow at a CAGR of 181.3% from $5.2 billion in 2016 to over $162 billion in 2020.

We believe that these efforts will help Baidu to grab a decent share in the fast growing AR market.

Baidu, Inc. Price and Consensus

 

Baidu, Inc. Price and Consensus | Baidu, Inc. Quote

At present, Baidu has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

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