I recently wrote an article on Baidu (BIDU) and the theme of the article stated that I expected BIDU to go up soon. I could not have been more wrong. At the time of the article, the stock was trading at about 111 and presently it is hovering around 95. What went wrong with my observations?
It was just a week ago that Citigroup reiterated a sell rating for Baidu. The company is dealing with the negative affect of mobile revenue (which is less than PC) and the slow down in PC's revenue growth. Citigroup believes that the PC revenue growth rate of 21% will be hard to maintain because competitors are expected to claim market share. Both Qihoo and Sogou are going to claim more market share and Baidu has to figure out how to increase click-through rate (CTR) to compensate for the losses. Citigroup expects revenue to grow 20% less than originally forecasted.
I wrote on the potential of mobile revenue last time.
It seems that investors have concerns that the company may not be able to monetize the mobile business quickly enough to make up for PC revenue declines. The continued downward movement, I believe, is a reaction by investors that know the move from PC revenue to mobile revenue may take some time. It is not going to happen quickly. In fact, it may take a couple years to close the gap between the two. So short term, revenue could be less than originally expected but long term that may not be the case as I have read that Baidu is pouring 25% of its R&D into mobile and cloud computing. The company envisions a smooth transition for consumers from PC to mobile.
So I believe my initial observations on the company were wrong. It appears that investor sentiment is not favoring the company right now because of the revenue transition I have previously mentioned. The stock may continue down for a season before turning around. That's short term.
Long term I believe if anyone is interested in investing in the stock, it may be a good buy. It seems the company has a good vision for where it wants to go. The company's "Project Aladdin" is the heart beat of its mobile development. This was started in 2008 and supports developers providing structured data, including sports scores, travel schedules and currency conversions-all in the Chinese language. Mobile app developers have many perks that encourages them to develop apps for the system. This is the future of Baidu and it looks very bright.
For three months the stock has been in a definite downward trading channel. Recently the RSI indicated an over sold position and that means the stock could be moving up again, having reached the latest low point. The MACD has remained in bearish territory below the '0' line revealing a bearish flavor to the present trend that does not look like it will end. It barely could touch the '50' marker of the RSI too. It is still strongly bearish. The 50 day MA looks like the resistance level it could move back up to. I am of the opinion it will continue down in the short term.