Baidu Inc (NASDAQ: BIDU) stock is going through bad times, amid America’s trade war with China and extremely bad first-quarter results. Baidu is facing headwinds in the digital advertising business. The company’s expenses are also growing and its video streaming service is also facing growth issues.
Earlier in July, Baidu stock fell after investment firm UBS gave a bearish rating for the stock. The firm said that a major downside for Baidu is expected in the ads market in the coming days. UBS analyst Jerry Liu said that in the second half of 2019, Baidu could face a problem in the growth of search and feed. However, it’s important to note that UBS has a $145 price target for Baidu stock, which shows an upside. The firm has a Neutral rating.
What Went Wrong?
In the recent week, Baidu started removing millions of ads from its platform amid pressure from regulatory authorities. These ads were allegedly misleading and mentioned several unethical terms. This was a shock for investors as ads business is one of the core segments of Baidu’s business.
However, if evaluated in the context of long-term opportunities, Baidu stock isn’t a bad investment.
After all, Baidu is sitting on $20 billion cash. The company recently said it would be buying $1 billion worth of stock, pushing its total share buyback program to $1.5 billion. This is an excellent sign, and shows that the stock is undervalued.
Baidu still beats other players in the Chinese search engine market by huge margins.
On June 18, investment firm Mizuho said that Baidu stock is significantly overvalued. Mizuho’s analyst James Lee thinks that Baidu’s operating income is on track and its new expenses on investments will drop by half. The analyst maintained a “Buy” rating and a price target of $195.
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Finance and Lending
In May, CITIC Bank (OTCPK:CHCJY) and Baidu entered into a partnership and are seeking to raise as much as $1 billion for a finance venture. Baidu’s arrival in the lending market of China could be an excellent catalyst for the company in the future. Traditional lending companies are facing a lot of competition amid the entry of Alibaba and Tencent.
Self-Driving Cars Industry
Despite problems in the core business, Baidu continues to expand into the explosive growth market of driverless cars. The company recently partnered with Chinese self-driving giant Geely and Toyota for an AI venture for driverless cars. Toyota will use Baidu’s Apollo Minibus software in its driverless buses. Baidu recently revealed that its self-driving platform reached a milestone of over 1 million miles.
Another possible catalyst for Baidu stock is the company’s foray into the Blockchain operating system. The platform will facilitate the development of dApps, or decentralized apps. These apps work on distributed architecture and play a key role in distributed ledger technologies such as the Ethereum Blockchain.
The author does not own any of the stocks discussed in this article.