Is Baidu Stock A Safe Bet Amidst The Current China Crisis?

Taking China Temperature With Baidu Stock

The January panic in China continued on January 7, with the government finally scrapping the market circuit breakers that could not stop the selling.

But it is important to note that what is happening there, so far, is a slowdown and not even a recession. One way to do this is by looking at Baidu (NASDAQ:BIDU), the equivalent of Alphabet Inc-C (NASDAQ:GOOG) in China.

Baidu does not have the same dominance in China that Google does elsewhere, but it offers many of the same services, and has been achieving some of the same success. YoY revenue growth is at 36%, and the company has been investing ahead of this growth, which is why profits were actually down by one-quarter between the last quarter and the same period a year ago.

BIDU net income chart

Source: Baidu net income chart by amigobulls.com

Baidu isn’t just the Google of China. It is also its Amazon (NASDAQ:AMZN), an e-commerce giant with a great phone app. The company’s alliance with Amazon includes acting as a default search engine for Kindles there, and providing software that makes the cheap tablet a compelling choice.

In China, the Internet market is a race to secure niches that already exist in the U.S, under the protection of a government that can seize assets, and people, with an impunity more common to Africa or the Middle East than a developed country. Thus Baidu is trying to get into auto insurance, in this case built around its mapping application. In addition to being its GEICO, the company also wants to be China’s Nuance Communications (NASDAQ:NUAN), with a Siri-like interface that is entirely based on machine learning. It wants to be seen as the equal of its American rivals, which is one reason it’s going into self-driving cars.

There are a lot of good things happening here, in short, and while it would be foolish to take recent buy recommendations at face value, at least until the entire Chinese market settles down, it’s probably as resistant to the downturn as any stock on that country’s board, with Baidu's stock price down just 15% in the last month. If you open the chart up, as they say, you’ll see that Baidu stock price followed the market’s August swoon with a march toward new highs by the end of November.

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Disclosure: I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 ...

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Peter Craig 3 years ago Member's comment

Just wait & see, if China doesn't stabilize BIDU is going down just like the rest of the Chinese stocks!

Moon Kil Woong 3 years ago Contributor's comment

A major issue is the risk you take in China's currency depreciation and the rising strength of the dollar. For this reason alone I think many people are looking to even exit Baidu's stock even though the author is right. It's a sound business that probably will only get stronger.

Sasha Williams 3 years ago Member's comment

That's a very good point.

Barry Hochhauser 3 years ago Member's comment

$BIDU is a giant, but I don't think they'd be immune to the problems China is facing.