Why Baidu Inc (NASDAQ: BIDU) stock is crashing

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Baidu Inc (NASDAQ: BIDU) stock lost over 14.8% on 17th May, 2019 (As of 11:43 am GMT-4; Source: Google finance).

Baidu has lost RMB327 million or $47.5 million in the first quarter, versus a profit of RMB6.7 billion a year ago. The loss was its first since going public in 2005. Baidu expects “online marketing in the near term to face a challenging environment” and expects quarterly revenue below market estimates. The company intends to take this opportunity to improve the monetization capabilities and review the businesses for operational efficiency, while recognizing the importance to invest for sustainable long-term growth. As of March 31, 2019, cash, cash equivalents, restricted cash and short-term investments were RMB 143.6 billion ($21.40 billion). Excluding iQIYI, cash, cash equivalents, restricted cash and short-term investments were RMB 125.7 billion ($18.73 billion), as of March 31, 2019. Free cash flow was negative RMB 1.3 billion ($195 million). Excluding iQIYI, free cash flow was negative RMB 1.5 billion ($226 million).

Meanwhile, Baidu is fighting on a number of fronts as the slowing Chinese economy is hampering the advertising sales and its desktop search business loses users to smartphones. While it is sinking billions into new technologies from artificial intelligence to self-driving cars, Baidu’s more urgent need is to attract younger users to its apps to keep ad revenue growing. Rivals like Bytedance Ltd. are already winning over advertisers in products from news feeds to short video apps.

BIDU in the first quarter of FY 19 has reported the adjusted earnings per share of 41, beating the analysts’ estimates for the adjusted earnings per share of 40 cents. The company had reported the adjusted revenue growth of 15.4 percent to $3.59 billion in the first quarter of FY 19, beating the analysts’ estimates for revenue of $3.53 billion. Revenue from online marketing services, a key contributor to overall sales, rose nearly 3per cent, falling slightly short of analyst estimates compiled by researcher FactSet. Total operating costs rose 53% to 25.06 billion yuan ($3.73 billion), as the company spent on content for its video-streaming service, iQiyi Inc., marketing related to the Lunar New Year in February and personnel.

Baidu forecast second-quarter revenue of 25.1 billion yuan to 26.6 billion yuan. That compared with the 29.30 billion yuan average analyst estimate, showed data from Refinitiv IBES.

Additionally, the company has authorized a new share repurchase program under which the Company may repurchase up to US$1 billion of its shares, effective until July 1, 2020.

 

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