Chinese internet search giant Baidu, Inc. (NASDAQ:BIDU) is scheduled to report its third quarter Fiscal 2022 results on November 22, before the market opens. BIDU stock has been hammered this year owing to the resurgence and lockdowns related to the COVID-19 pandemic, persistent regulatory hurdles for Chinese tech companies, and US-China trade tensions. These factors have impacted the company’s advertising revenue and subscription growth to a great extent. Year to date, BIDU stock has lost 35.6%.
The Street expects Baidu to post an adjusted profit of $2.17 per ADS, lower than the prior-year quarter figure of $2.28 per ADS. Similarly, revenue is pegged at $4.46 billion, marginally lower than the Q3FY21 figure of $4.95 billion.
Catalysts for Baidu’s Q3 Results
Interestingly, Baidu commands a wide and well-diversified moat split into Baidu Core and iQIYI units. Its artificial intelligence (AI) business, included in Baidu Core is one of the largest in China, spanning various segments. Baidu provides cloud services, smart transportation, smart devices, self-driving, smart electric vehicles (EVs), and robotaxi services.
Even the AI Cloud business is well positioned for solid growth, thanks to the rapidly growing Chinese cloud services market. Also, the company noted in its Q2FY22 results that its AI Cloud business will focus on “quality revenue growth and sustainable business models.” This signifies that Baidu is on the path to generating meaningful profitability in this segment.
Moreover, its autonomous ride-hailing service business, Apollo Go, is touted as the biggest in the world and also has the first-mover advantage in China. Apollo Go also provides a fully driverless ride-hailing service in Chongqing and Wuhan. The relaxing of COVID-19 restrictions should hugely benefit the Apollo Go business.
Having said that, its streaming unit, iQIYI, is struggling to garner subscribers due to the broader economic slowdown. Nonetheless, the reopening of the economy may enable Baidu to attract both lost subscribers as well as new ones.
Is Baidu a Buy or Sell?
With ten Buys and three Hold ratings, Baidu stock commands a Strong Buy consensus rating. On TipRanks, the average Baidu price target of $166.77 implies 73.8% upside potential to current levels.
Furthermore, Baidu currently trades at a forward price/sale (P/S) multiple of 1.88x, which is much lower than its five-year average of 3.68x. This implies that the stock has huge upside potential going forward.
Baidu’s solid portfolio of offerings is undoubtedly one of the largest and best in the industry. Barring the short-term headwinds, Baidu is well-positioned for solid growth in the long term. Additionally, analysts are highly optimistic about Baidu’s Cloud and Apollo Go businesses. However, considering the uncertain macroeconomic headwinds, investors may want to wait until the Q3 reports to learn more about the company’s future.