Baidu Turns Bearish as Q4 Earnings Decline 80% y-o-y

Baidu Turns Bearish as Q4 Earnings Decline 80% y-o-y
February 28, 2017

Loss of revenue from healthcare ads continue to haunt Chinese search engine provider Baidu Inc (NASDAQ: BIDU) which posted nearly 82% decline in the fiscal 2016 fourth-quarter earnings, compared to the corresponding quarter last year. The Q4 revenue also declined 2.6% on a y-o-y basis. Following the results, the stock has lost about 10% so far to close at $172.97 on Monday. On the basis of the details provided below, we anticipate the downtrend to continue in the short-term.

The Beijing-based company reported 4Q16 revenues of RMB 18.21 billion ($2.65 billion), down 2.6% from RMB 18.70 billion ($2.72 billion) in the 4Q15. The reported figures missed Wall Street revenue estimates of $2.67 billion.

For fourth-quarter of 2016, Baidu recorded about 80% decline in the net income to RMB 4.13 billion ($594.7 million) or RMB 113.98 per share, from RMB 24.71 billion ($3.56 billion) or RMB 709.15 per share in the fourth-quarter last year.

For the quarter ended December 2016, the earnings per ADS (American Depository Share) were RMB 11.40 ($1.64), compared with 70.92 RMB ($10.20) in the quarter ended December 2015. Excluding items, the fourth-quarter non-GAAP earnings per ADS plunged to RMB 13.23 ($1.91), from non-GAAP earnings per ADS of RMB 72.24 ($10.43) in the prior year’s corresponding quarter.

Excluding the net gain from the exchange of Uber China shares with Didi, the fourth quarter earnings per ADS of RMB 6.49 ($0.93) was higher than analysts’ estimates of $0.90 per share.
Online marketing revenues for the recent quarter decreased 8.2% y-o-y to RMB 16.17 billion ($2.328 billion). R&D expenses increased 19.5% y-o-y to RMB 2.971 billion ($428 million) in the fourth-quarter.

Mobile search Monthly Active Users (MAUs) recorded a lackluster 2% y-o-y increase to 665 million in December 2016. However, Gross Merchandise Value (GMV) for transaction services grew 23% y-o-y to RMB 18.1 billion ($2.6 billion).

For the first-quarter of 2017, Baidu anticipates revenues of between RMB 16.48 billion ($2.374 billion) and RMB 17.03 billion ($2.453 billion). Baidu’s outlook is lower than analysts’ first-quarter revenue estimates of $2.50 billion. Thus, considering the sharp decline in income and soft Q1 outlook, we anticipate the stock to remain bearish in the current quarter.

The stock has a minor support at 172 and major support at 164. Considering the steep fall we saw in the recent trading sessions, we can anticipate the stock to break the minor support as well. The negative slope of the stochastic oscillator also justifies the bearish view.

Baidu - Technical Analysis - 28th February 2017

In order to gain from the probable downtrend, a trader should invest in a low or below option contract which expires in one week. The chances of ending the trade in the money are higher if the entry is made when the stock trades above $175.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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