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Category: Stock Market and Baidu
Date: 25 August 2019 Stock Price: $101.85 We take a look at the 2nd quarter 2019 financial results reported for Baidu the internet services group active in the largest internet market in the world. China.
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About Baidu
The origin of Baidu’s name
Our name was inspired by a poem written more than 800 years ago during China's Song Dynasty. The poem compares the search for a retreating beauty amid chaotic glamour with the search for one's dreams while confronted by life's many obstacles. “…Hundreds and thousands of times, for her I searched in chaos / Suddenly, I turned by chance, to where the lights were waning, and there she stood." Baidu, whose literal meaning is “hundreds of times,” represents a persistent search for the ideal.
Baidu’s history
Baidu was co-founded in 2000 by Internet pioneer Robin Li, creator of visionary search technology Rankdex, a method of hyperlink analysis. He set out to provide the best and most equitable way for people to find what they're looking for and built a company culture predicated on two principles: simplicity and reliability. Over the past 16 years, we have striven to fulfill our mission by listening carefully to our users. In order to provide intelligent, relevant search results for the tens of billions of queries that are entered into our search platform every day, we focus on powering the best technology, optimized for up-to-date local tastes and preferences. Our deep understanding of Chinese language and culture is central to our success in our home market, and this understanding has allowed us to tailor our search technology for our users’ needs.
We also see tremendous opportunity to service users outside China, in markets such as Brazil, Egypt, Indonesia, Japan, and Thailand. We are beginning to see our international products gain traction, with 260 million monthly active users in December 2015. Baidu’s platformWe provide our users with many channels to connect to information and services. In addition to our core web search product, we power several popular community-based products. These include Baidu PostBar, the world’s first and largest Chinese-language query-based searchable online community platform; Baidu Knows, the world’s largest Chinese-language interactive knowledge-sharing platform; and Baidu Encyclopedia, the world’s largest user-generated Chinese-language encyclopedia. Beyond these marquee products we also offer dozens of popular vertical search-based products, such as Maps, Image Search, Video Search, News Search, and many more.
We power these through our cutting-edge technology, continually innovating to enhance these services. Over the past few years, rapid mobile adoption has dramatically altered the Internet landscape and opened up tremendous opportunities. In the mobile era, mobile search, maps and app distribution are large scale, powerful gateways that China’s users rely on to connect and discover. Mobile revenue comprised 60% of our total revenue as of Q1 2016, and mobile search accounted for approximately two-thirds of total search traffic on Baidu. As Baidu grows and evolves in the age of mobile, we are taking mobile search to the next stage by connecting users with both information and services, enabling users to complete closed loop transactions and providing local merchants across multiple industry verticals with an integrated online marketing and transaction services solution.
In addition to serving individual users, we also serve as a media platform for online marketing customers. Our online marketing business model is mainly based on a performance-oriented marketing platform for businesses to cost-effectively reach targeted Internet users. We offer performance-based online marketing services and display advertisements through both organic Baidu websites and our affiliated website partners (Baidu Union). Our affiliated Baidu Union partners direct traffic to us by integrating a Baidu search box into their websites and/or by displaying relevant contextual promotional links for our customers. The majority of our revenue is derived from performance-based online marketing services, whereby our customers pay on a cost per click basis when their paid-link is clicked through by users. Our goal is to give our customers an online marketing platform with a full range of marketing options, an extensive selection of tools for managing their accounts, and data for analyzing and optimizing ROI.
Our name was inspired by a poem written more than 800 years ago during China's Song Dynasty. The poem compares the search for a retreating beauty amid chaotic glamour with the search for one's dreams while confronted by life's many obstacles. “…Hundreds and thousands of times, for her I searched in chaos / Suddenly, I turned by chance, to where the lights were waning, and there she stood." Baidu, whose literal meaning is “hundreds of times,” represents a persistent search for the ideal.
Baidu’s history
Baidu was co-founded in 2000 by Internet pioneer Robin Li, creator of visionary search technology Rankdex, a method of hyperlink analysis. He set out to provide the best and most equitable way for people to find what they're looking for and built a company culture predicated on two principles: simplicity and reliability. Over the past 16 years, we have striven to fulfill our mission by listening carefully to our users. In order to provide intelligent, relevant search results for the tens of billions of queries that are entered into our search platform every day, we focus on powering the best technology, optimized for up-to-date local tastes and preferences. Our deep understanding of Chinese language and culture is central to our success in our home market, and this understanding has allowed us to tailor our search technology for our users’ needs.
We also see tremendous opportunity to service users outside China, in markets such as Brazil, Egypt, Indonesia, Japan, and Thailand. We are beginning to see our international products gain traction, with 260 million monthly active users in December 2015. Baidu’s platformWe provide our users with many channels to connect to information and services. In addition to our core web search product, we power several popular community-based products. These include Baidu PostBar, the world’s first and largest Chinese-language query-based searchable online community platform; Baidu Knows, the world’s largest Chinese-language interactive knowledge-sharing platform; and Baidu Encyclopedia, the world’s largest user-generated Chinese-language encyclopedia. Beyond these marquee products we also offer dozens of popular vertical search-based products, such as Maps, Image Search, Video Search, News Search, and many more.
We power these through our cutting-edge technology, continually innovating to enhance these services. Over the past few years, rapid mobile adoption has dramatically altered the Internet landscape and opened up tremendous opportunities. In the mobile era, mobile search, maps and app distribution are large scale, powerful gateways that China’s users rely on to connect and discover. Mobile revenue comprised 60% of our total revenue as of Q1 2016, and mobile search accounted for approximately two-thirds of total search traffic on Baidu. As Baidu grows and evolves in the age of mobile, we are taking mobile search to the next stage by connecting users with both information and services, enabling users to complete closed loop transactions and providing local merchants across multiple industry verticals with an integrated online marketing and transaction services solution.
In addition to serving individual users, we also serve as a media platform for online marketing customers. Our online marketing business model is mainly based on a performance-oriented marketing platform for businesses to cost-effectively reach targeted Internet users. We offer performance-based online marketing services and display advertisements through both organic Baidu websites and our affiliated website partners (Baidu Union). Our affiliated Baidu Union partners direct traffic to us by integrating a Baidu search box into their websites and/or by displaying relevant contextual promotional links for our customers. The majority of our revenue is derived from performance-based online marketing services, whereby our customers pay on a cost per click basis when their paid-link is clicked through by users. Our goal is to give our customers an online marketing platform with a full range of marketing options, an extensive selection of tools for managing their accounts, and data for analyzing and optimizing ROI.
Financial overview of Baidu's latest results
Numbers we are interested in: (for the quarter)
- Total revenues RMB25.972 billion ($3.65 billion)
- Net income attributable to Baidu: $351 million
- Net margin 25%
- Cash and equivalents: $3.018 billion
- Shares in issue: 35.044 million (1 share equals 10 ADS)
- Cash and equivalents per share: $8.6
- Diluted earnings per share (ADS): $0.96
- Accounts receivable: $1.01 billion
- Shareholders equity: $25.820 billion
- Net asset value: $7.14 per ADS
Baidu (NYSE:BIDU) management commentary on the results and earnings guidance
“Our focus on strengthening Baidu’s mobile ecosystem through knowledge-based content, BJH accounts, smart mini programs and managed pages on Baidu’s platform is translating into better user experience, stronger traffic growth, and, we believe, ultimately higher conversion for our customers. In June, Baidu App DAUs reached 188 million, up 27% year over year, in-app search queries grew over 20% year over year and smart mini program MAUs reached 270 million, up 49% sequentially,” said Robin Li, Baidu co-founder and CEO.
“On Baidu’s AI businesses, DuerOS voice assistant continues to experience strong momentum with installed base surpassing 400 million devices, up 4.5 fold year over year, and monthly voice queries surpassing 3.6 billion, up 7.5 fold year over year, in June. As mobile internet penetration in China slows, we are excited about the huge opportunity to provide content and service providers a cross-platform distribution channel beyond mobile, into smart homes and automobiles.” “Baidu delivered a solid second quarter with revenues reaching RMB 26.3 billion, growing 9% sequentially, and Baidu Core revenues growing 12% sequentially, despite the weak macro environment, our self-directed healthcare initiative, industry-specific policy changes and large influx of ad inventory.” said Herman Yu, Baidu CFO. “With Baidu traffic growing robustly and our mobile ecosystem continuing to expand, we are in a good position to focus on capitalizing monetization and ROI improvement opportunities to deliver shareholder value.”
Total revenues reached RMB 26.3 billion ($3.84 billion), increasing 1% year over year, or 6% year over year, excluding the impact of announced divestures, and increasing 9% quarter over quarter.
Online marketing revenues were RMB19.2 billion ($2.80 billion), decreasing 9% year over year and increasing 9% quarter over quarter.
Other revenues were RMB 7.1 billion ($1.03 billion), increasing 44% year over year, driven mainly by robust growth in iQIYI membership services, cloud and smart devices. Revenue from Baidu Core reached RMB 19.5 billion ($2.85 billion), decreasing 2% year over year, or increasing 3% year over year, excluding the impact of announced divestures , and increasing 12% quarter over quarter.
Baidu Core’s marketing services experienced softness in top sectors, including healthcare, online games, financial services, and auto/logistics sectors. Revenue from iQIYI reached RMB 7.1 billion ($1.04 billion), up 15% year over year. iQIYI membership services grew 38% year over year, while online advertising revenue fell 16% year over year. Content costs were RMB 5.8 billion ($847 million), increasing 12% year over year, mainly due to increased investment in iQIYI content and, to a much lesser extent, in content for BJH accounts,
Baidu’s feed publisher network. Traffic acquisition cost was RMB 3.4 billion ($499 million), increasing 27% year over year, as a result of higher TAC costs and expansion into offline digitalized screens and other areas.
Bandwidth costs were RMB 2.0 billion ($298 million), increasing 32% year over year, mainly due to increasing demand from feed, video and cloud services.
Other cost of revenues, which includes depreciation, operational costs, sales taxes and surcharges, and sharebased compensation, was RMB 4.8 billion ($703 million), increasing 89% year over year, mainly due to higher cost of goods sold for smart home devices and higher depreciation expense. Selling, general and administrative expenses were RMB 5.2 billion ($764 million), increasing 16% year over year, primarily due to increased investment in channel and promotional marketing, as well as the increase in personnel related expenses.
Research and development expenses were RMB 4.7 billion ($690 million), increasing 17% year over year, primarily due to the increase in personnel related expenses.
Financial Guidance
For the third quarter of 2019, Baidu expects revenues to be between RMB 26.9 billion ($3.84 billion) and RMB 28.5 billion ($4.07 billion), representing -5% to 1% increase year over year, or -1% to 5% increase year over year, excluding revenues from announced divestures, and 2% to 8% increase quarter over quarter. Previously announced divestures, which were consummated in 2018, generated approximately RMB 1.0 billion revenue in the third quarter of 2018. This forecast reflects Baidu’s current and preliminary view, which is subject to substantial uncertainty.
“On Baidu’s AI businesses, DuerOS voice assistant continues to experience strong momentum with installed base surpassing 400 million devices, up 4.5 fold year over year, and monthly voice queries surpassing 3.6 billion, up 7.5 fold year over year, in June. As mobile internet penetration in China slows, we are excited about the huge opportunity to provide content and service providers a cross-platform distribution channel beyond mobile, into smart homes and automobiles.” “Baidu delivered a solid second quarter with revenues reaching RMB 26.3 billion, growing 9% sequentially, and Baidu Core revenues growing 12% sequentially, despite the weak macro environment, our self-directed healthcare initiative, industry-specific policy changes and large influx of ad inventory.” said Herman Yu, Baidu CFO. “With Baidu traffic growing robustly and our mobile ecosystem continuing to expand, we are in a good position to focus on capitalizing monetization and ROI improvement opportunities to deliver shareholder value.”
Total revenues reached RMB 26.3 billion ($3.84 billion), increasing 1% year over year, or 6% year over year, excluding the impact of announced divestures, and increasing 9% quarter over quarter.
Online marketing revenues were RMB19.2 billion ($2.80 billion), decreasing 9% year over year and increasing 9% quarter over quarter.
Other revenues were RMB 7.1 billion ($1.03 billion), increasing 44% year over year, driven mainly by robust growth in iQIYI membership services, cloud and smart devices. Revenue from Baidu Core reached RMB 19.5 billion ($2.85 billion), decreasing 2% year over year, or increasing 3% year over year, excluding the impact of announced divestures , and increasing 12% quarter over quarter.
Baidu Core’s marketing services experienced softness in top sectors, including healthcare, online games, financial services, and auto/logistics sectors. Revenue from iQIYI reached RMB 7.1 billion ($1.04 billion), up 15% year over year. iQIYI membership services grew 38% year over year, while online advertising revenue fell 16% year over year. Content costs were RMB 5.8 billion ($847 million), increasing 12% year over year, mainly due to increased investment in iQIYI content and, to a much lesser extent, in content for BJH accounts,
Baidu’s feed publisher network. Traffic acquisition cost was RMB 3.4 billion ($499 million), increasing 27% year over year, as a result of higher TAC costs and expansion into offline digitalized screens and other areas.
Bandwidth costs were RMB 2.0 billion ($298 million), increasing 32% year over year, mainly due to increasing demand from feed, video and cloud services.
Other cost of revenues, which includes depreciation, operational costs, sales taxes and surcharges, and sharebased compensation, was RMB 4.8 billion ($703 million), increasing 89% year over year, mainly due to higher cost of goods sold for smart home devices and higher depreciation expense. Selling, general and administrative expenses were RMB 5.2 billion ($764 million), increasing 16% year over year, primarily due to increased investment in channel and promotional marketing, as well as the increase in personnel related expenses.
Research and development expenses were RMB 4.7 billion ($690 million), increasing 17% year over year, primarily due to the increase in personnel related expenses.
Financial Guidance
For the third quarter of 2019, Baidu expects revenues to be between RMB 26.9 billion ($3.84 billion) and RMB 28.5 billion ($4.07 billion), representing -5% to 1% increase year over year, or -1% to 5% increase year over year, excluding revenues from announced divestures, and 2% to 8% increase quarter over quarter. Previously announced divestures, which were consummated in 2018, generated approximately RMB 1.0 billion revenue in the third quarter of 2018. This forecast reflects Baidu’s current and preliminary view, which is subject to substantial uncertainty.
Baidu (NYSE:BIDU) stock price history
The image below obtained from Google shows the stock price history of Baidu (NYSE:BIDU) for the last 5 years.And as the image shows its not been a good time for Baidu shareholders, with the stock declining from around $230 in 2015 to trading at just over $100 a share at the moment.
Baidu (NYSE:BIDU) stock valuation
Valuing Baidu is pretty hard to do considering their earnings are reported in RMB and a currency conversion has to take place to estimate their earnings in US dollars. The problem with this is that even if the business earnings remained exactly the same there could be large variations in the earnings reported purely based on the performance of the exchange rate. And a strong US dollar will hurt the group's earnings when reported in US dollars. And in addition to this each ADS listed on the NYSE is worth 0.1 Baidu share So basically 1 Baidu share equates to 10 ADS's listed. All things considered we value the group's stock at $102.6 a share. They operate in high growth markets and we expect earnings to continue to grow at a steady pace.
The real negative of the stock is the fact that the US reported earnings will come under pressure if and when the US dollar shows any strength (as it has been for years) and this will negatively affect the stock price which as shown above has been under significant pressure in the last couple of years.
The real negative of the stock is the fact that the US reported earnings will come under pressure if and when the US dollar shows any strength (as it has been for years) and this will negatively affect the stock price which as shown above has been under significant pressure in the last couple of years.