Not Only Is Growth Back At Baidu, Shares Are Still Very Cheap

In my preview going into Baidu's earnings last week, I stated that if growth were back at Baidu, the shares would be cheap. Well, after their earnings report and guidance for the current quarter, not only is growth back at Baidu but shares are still very cheap despite the pop on Friday.

On Thursday night of last week, Baidu reported earnings of $2.37 per share on revenues of $3.08 billion versus Street expectations of $1.51 per share on revenues of $3.08 billion. So, a beat on the bottom-line by a mile and an in-line number on revenues.

For the current quarter ending in September, Baidu guided revenues higher by about $200 million (mid-point) which was 31% higher year-on-year showing growth at Baidu is back.

EBITDA in the June quarter was up over 41% to $886 million.

Street estimates for Baidu are still moving higher post its results and guidance and I would estimates that a number in the very low double digits ($10/share or so) for earnings in 2018 is not entirely too optimistic nor pie-in-the-sky.

It seems that Baidu is successfully making the shift away from the capital-intensive and money-losing online-to-offline (O2O) area to artificial intelligence (AI) which carries far higher margins which will only expand as that revenue stream expands going forward.

Just this morning, there is chatter that Baidu is planning to sell its food delivery service, Waimai, to, for roughly $1.25 billion. A good move from any point of view given the move away from O2O.

Another point that investors need to keep in mind when they decide to add to their investment or enter into one in Baidu is the fact that the company is seeing rapidly accelerating momentum in the news feed ad business and Baidu's SVOD service, is still way undervalued by investors.

After almost two and a half years of relatively dismal performance, Baidu shares could be just getting started.

It is still not too late to take advantage of the opportunity ahead in Baidu.

(Long bidu, long and short bidu options)

Original Link