Why Is Baidu (BIDU) Stock Trending Today?

A Baidu (BIDU) sign outside a company headquarters in Shenzhen, China.

Source: StreetVJ / Shutterstock.com

After a choppy trading session during Tuesday morning’s session, Chinese internet and technology company baidu (NASDAQ:BIDU) manages to swing into the green this afternoon. Earlier, the company released encouraging results from its third-quarter earnings report, indicating a broader technical recovery in China. However, the country’s Covid-19 policies and other macroeconomic stresses are clouding broader enthusiasm for BIDU stocks.

In sheer numbers, Baidu’s performance gives market optimists hope that the worst of the downturn in China is over. First, the company had revenue of $4.57 billion, up 2% from the prior-year period Barrons. That tally beat Wall Street’s consensus revenue target of $4.46 billion.

Notably, online marketing revenue fell 4% year over year to $2.63 billion, largely due to Covid-19 restrictions. Still, Baidu mentioned that the unit’s revenue improved sequentially since the second quarter due to the gradual improvement in the economic environment.

Bottom line, Baidu posted non-GAAP earnings per American depositary share (To sue) from $2.37. This figure surpassed the consensus target of $2.15. Corresponding BloombergBaidu’s cost-cutting efforts also helped shore up profitability metrics.

Still, Baidu remains committed to diversifying its product portfolio. As Bloomberg notes that over-reliance on digital marketing could leave BIDU stock vulnerable to future economic shocks. In Q3, Baidu’s non-online marketing revenue — including contributions from its artificial intelligence (AI) and cloud computing units – up 25% year-on-year (YOY).

Macro worries still stymie BIDU stick

Though BIDU stock has seen clearly positive momentum in recent trading sessions — up more than 19% over the past month — investors are largely skeptical about the underlying business. Since the beginning of the year, Baidu’s stock has plummeted more than 35%.

At the heart of concerns about BIDU stock is China’s stance on Covid-19. In sharp contrast to many other nations that have fully reopened, the Chinese government is insisting on its infamous zero-Covid policy.

Recently, rumors have been circulating that Beijing is relaxing its pandemic containment protocols, potentially paving the way for a full reopening in China in 2023. Unfortunately, however, the latest news suggests that the country could resume its tough policies. Additionally, abc news reports that Chinese authorities have announced China’s first Covid-19 death in almost six months. Of course, this momentum does not bode well for the country’s economic recovery efforts, which in turn hurts BIDU stock.

Another factor to consider here is international competition. In October, neighboring Japan was reopened to foreign tourism. A key catalyst for increasing demand for travel to Japan is the weak Japanese yen. Unlike other central banks, the Bank of Japan has kept interest rates low.

However, by the time China reopens, global economic circumstances may have changed. Given legitimate fears of a global slowdown, it’s possible that Japan and other popular tourist destinations have soaked up the low-hanging consumer discretionary fruit. This could later also put pressure on the BIDU share.

On the day of publication Josh Enomoto held (neither directly nor indirectly) positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are governed by InvestorPlace.com Posting Policies.

A former Senior Business Analyst at Sony Electronics, Josh Enomoto helped broker key deals with Fortune Global 500 companies. Over the past several years, he has provided unique, crucial insights for the investment markets as well as various other industries including legal, construction management and healthcare.


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