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Time to Get Over Google Earnings Miss With Baidu-Heavy ETFs?

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The dominant search engine company of China — Baidu (BIDU - Free Report) — is often referred to as the Google of China.  It recently released upbeat fourth-quarter results after the market closed on Feb 13. The company beat estimates on both lines and provided an optimistic outlook, which lifted investors’ mood and drove the stock price. Shares of BIDU gained about 5.2% after hours, at the time of writing.

Q4 in Detail

The Beijing-based company’s fourth-quarter 2017 earnings per share of $2.29 beat analysts’ estimate of $2.05. Total revenues of $3.62 billion rose 29% year over year, exceeding the estimate of $3.57 billion. There was a 26% rise in online marketing revenues. Mobile sales made up about 76% of total revenues, up from 65% a year earlier.

Baidu had approximately 460,000 active online marketing customers at the end of the quarter, representing a 2% increase from the prior-year quarter. Online marketing revenues climbed 26%. The search engine posted operating income growth of 118%.

Upbeat Outlook

The outlook is encouraging too. For the first quarter of 2018, Baidu expects net revenues between $3.05 billion and $3.22 billion, marking 25% to 32% growth. Baidu management noted that the company is focusing on its core search business, especially on mobile, to boost growth in its news feed business, and hone in on artificial intelligence (AI) to improve iQiyi.

Baidu also disclosed plans for listing its online content platform iQiyi in the United States, “though said the size of any IPO was not yet set. Baidu said it was likely to remain iQiyi's controlling shareholder.”

Market Impact  

Quite expectedly, Baidu’s upbeat results and guidance stoked optimism among investors as the stock traded in the green after hours.

Scared About Google After Q4?

Shares of Alphabet (GOOGL - Free Report) took a beating owing to disappointing earnings released this month. The company reported a 24.0% year-over-year increase in net quarterly revenues. It beat the Zacks Consensus Estimate on revenues in the fourth quarter of 2017, but failed to beat the consensus estimate on earnings.

Alphabet reported non-GAAP earnings of $9.70 per share, which failed to beat the Zacks Consensus Estimate of $10.12 but increased from $7.56 in the year-ago period (read: ETFs in Focus Post Alphabet's Q4 Earnings).

Investors should note that big tech stocks and ETFs have been under pressure this month on overvaluation concerns. While Google has a better VGM (Value, Growth, Momentum) Score of B than Baidu’s C, the latest earnings improvement may lend Google of China an edge over Google of the United States.

Baidu has a sizable exposure (at least over 6%) in many Internet and China-based funds like China Technology ETF (CQQQ - Free Report) , CSI China Internet ETF (KWEB - Free Report) , NASDAQ China Technology ETF and Golden Dragon Halter USX China Portfolio (PGJ - Free Report) .

This suggests that the performance of these funds is highly dependent on Baidu. As a result, the above-mentioned ETFs might gain. Below, we have highlighted four funds that have significant exposure to Baidu.

QQQC in Focus

The stock under review, Baidu, occupies the fourth position in the basket with 7.43% of assets.

CQQQ in Focus

Here also, the in-focus Baidu takes the third spot in its 72-security basket with a 7.6% share (read: 5 Tech ETFs That Crushed FANG ETFs in 2017).

PGJ in Focus

Baidu holds the fourth position with about 7% exposure.

KWEB in Focus

This China Internet ETF gives exposure to a variety of industries in the Technology space. Baidu holds the fourth position with about 6.92% exposure.

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