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Baidu Inc.: 1Q2020 Results Beat Street Forecasts By Wide Margin

Jun. 04, 2020 3:00 PM ETBaidu, Inc. (BIDU)14 Comments
ValueX profile picture


  • Solid 1Q20 results way ahead of consensus forecasts.
  • Robust in-app traffic growth helped margin improvement.
  • Positive 2Q20 guidance implies a continued recovery underway.

Baidu delivered better-than-expected 1Q results, with revenue 3% above consensus and adjusted operating margin 12 percentage points higher than the Street forecasts, supported by the improving efficiency of Baidu’s own ecosystem and stringent cost control.

Despite revenue having been negatively impacted by COVID-19, other KPIs – such as average DAU, in-app search queries, feed time, etc., continued to show strong growth momentum, implying the effectiveness of Baidu’s ongoing efforts to enhance its mobile ecosystem and user experience through building Baijiahao, smart mini programs, and managed page.

Advertisers in various sectors are now in the different stages of business resumption, some of which are slightly slower than previously expected. Meanwhile, management guided that Baidu will focus on optimizing profit growth amid intensified industry competition and current difficult market conditions.

On the monetization side, as offline activities are rebounding, management observed a nice recovery trend in various sectors – such as healthcare, franchising, auto and logistics, etc. The midpoint of 2Q revenue guidance is flat yoy and 3% ahead of consensus. Within that, Baidu Core is on track to recover sequentially, on the gradual pick-up in the above-mentioned sectors, while iQiyi will be under pressure, due to limited visibility in brand ads.

On the margin side, 1Q margin was better than expected, especially for Baidu Core, due to: 1) disciplined sales & marketing spending, and 2) lower traffic acquisition costs. However, I still expect yoy adjusted operating margin deterioration for Baidu Core (from 25.5% in FY19 to 23.4% in FY20), given soft top-line growth and Baidu gradually increasing investment in content cost and promoting its Mobile Baidu app. As revenue recovers, I forecast a low-teen increase in total expenses (COGS and operating) sequentially for the rest of FY20. I view Baidu’s 2Q guidance as positive, and expect a further recovery in 2H, as the offline business gets fully back to normal. The successful transition to in-app search will also likely bring improvement on monetization.

This article was written by

ValueX profile picture
I am a value investor. Interested in mis-priced securities that presents a high upside potential with down-side protection in balance sheet. I am a trained research analyst and continue to practice in industry.

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Comments (14)

Seems most here don't like Chinese stocks. I understand where you're coming from. But why do you even care, since you have no investments in Chinese stocks?
leeo268 profile picture
They are probably Chinese Stock Shorts.
callmecurious profile picture
Find me a Chinese ADR with bad numbers that didn't beat expectations! Lukin was the start of the fraud unveiling imo.
These Chinese companies pay good money for marketing like this article. I personally don't trust anything from the Communist of China (Mainland)
04 Jun. 2020
The disclosure says in the very last sentence: "I have no business relationship with any company whose stock is mentioned in this article."

Do you have any support for your belief?
'Beat Street Forecasts By Wide Margin"

Whenever you get results from China that seem too good to be true, there's a good chance that not everything is as it seems.
PeteE profile picture
A lot of US fund managers don't want to be seen holding Chinese stocks in this environment. These could be toxic for a while. China really hurt their brand worldwide by their handling of the Pandemic. That has to be factored in at least in the short term.
Plus, US "really hurt their brand worldwide by their handling of the Pandemic."
leeo268 profile picture
US Bubble groups do not equal the Worldwide view. Granted that US investors are discouraged from investing in Chinese stock in NY stock exchange right now. Thus, Chinese companies are doing homecoming IPO in HK. Netease and JD are having a very impressive oversubscribed IPO in HK. Chinese investors are rushing through the doors to buy them.
Beat by huge margin and still down 3%.
The beat was 2 weeks ago my friend. This is an analysis.
Rocknation profile picture
Long $bidu
Suspirium Puellarum profile picture
@Rocknation This is such a helpful and informative comment! Thank you for sharing!
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