What is Wrong with Baidu?

Baidu (NASDAQ:BIDU) reported first-quarter results that sent the stock down 16% as shares closed at $128.31. What was so bad with the quarter and will the massive $1 billion share buyback help investors at all?

Baidu reported an EPS of $0.41 (non-GAAP) and a GAAP EPS loss of $0.15. Revenue rose just 15% to 24.12B yuan (USD $3.5 billion). The bad news is that costs soared 53%. This may have lifted DAU (daily active users) by 28% to 174 million users but the net income drop of 80% is a setback for shareholders. With no profit growth and with revenue guidance in Q2 at 25.1 billion - 26.6 billion yuan, below consensus, there is little to like about what to expect next.

Baidu’s cash burn should concern investors. Its falling revenue guidance (down 2% or up 4% at best) in Q2 is due to many factors. Macro headwinds, including the U.S.-China trade tensions, is an ongoing headwind. Chinese New Year in the last quarter led to a slowing business. But this also led to an increase in inventory which Baidu now must work down in the current quarter.

Your Takeaway

Keep an eye on Baidu’s CPM, which it will not improve in the near-term. Health care, online gaming, and financial services are all getting hit the hardest year-on-year due to the slowdown. Should China introduce a stimulus or the trade dispute gets resolved, BIDU stock could trade lower.