Since the COVID-19 pandemic arrived in Q1 this year, the name of the game on the stock market has firstly been to avoid or sell stocks exposed to economic disruption, and seek out companies that will either be unaffected, or preferably may gain in the current environment.
This should be a relatively straightforward process. But in the case of the Baidu share price, as it is China’s leading search engine company, we have a good example of some of the pros and cons of attempting to catch a COVID-19 winner.
There are several key factors applying to the BIDU share price currently, not least of which are its forthcoming earnings. Here we shall see how the company has been able to bounce back - along with the rest of the Chinese economy. The interest here is the way that having been the first into the coronavirus crisis, it was evident that China was one of the first nations to emerge from it.
The Baidu share price is primarily influenced by the main business of internet search and is online - away from COVID-19, it will be significant how much the fundamentals dipped earlier this year, and how much they have rebounded now. The main metric of concern will of course be advertising revenue. It does not matter so much that Baidu shares may be not directly affected by COVID-19, but more that companies in sectors affected by the pandemic, especially in the travel and hospitality sectors, may be trimming advertising budgets, or even have gone out of business.
Baidu Shares: The TikTok Factor
The fact that Baidu has 75% of the Chinese search engine market but has seen its revenues decline over recent quarter does flash a warning sign. To have such a dominant position and still be running just to stand still belies a fundamental problem. It is that the growth drivers in non search advertising and especially streaming videos.
The TikTok phenomenon has been the winning one this year, even though BIDU shares have been supported by its own streaming video unit, IQiyi, which contributes nearly a third of the company’s revenue. Perhaps it could be said that the ideal split distribution in revenues at Baidu would be one third internet search engine, and two thirds streaming video, rather than the other way around.
In order to avoid the search engine drag on earnings - the consensus for Q3 is 99c a share versus $1.31 last year, it would appear that Baidu will not only have to rebalance its business, it may have to pivot into other areas. Recent news reports have centred on Baidu buying JOYY’s streaming video player platform, something which is essentially a acquiring of growth strategy, while its own short video app, Haokan grows to critical mass.
BIDU share price: daily chart target
The Baidu share price has recovered well since the March low of $82, having traded as high as $147 in January just before the pandemic struck. Since March the stock has via a trend channel currently based near the 50 day moving average at $126. Above this support zone the recovery is expected to continue on a technical basis back towards year highs and the analysts consensus price target of $156.
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