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Baidu (NASDAQ: BIDU) Stock reports Q4 2016 earnings on February 23rd 2017. What are the key factors to consider?

1. Price – Positive Momentum

Up 10% YTD and 17% over the past twelve months, the Chinese web services company shows positive momentum.* However, the stock price is under its Oct 2014 peak of245USD per share* – giving an indication that the company may struggle to generate consistent growth.**

2. Profit Expectations

Meanwhile, the expectation of EPS is 0.93USD – down over 25% from the previous quarter as well as YoY – due to heavy amounts of investment expenses into sales, marketing and new product launches.* Based on these factors forecasts for 2017 are for YoY earnings declines before generating higher growth from 2018 onwards.**

Operating profits are forecasted at 1.5 billion USD for Q4 2016** – in line with the trend of 16% achieved through 2016.* Crucially investors are awaiting the success of Baidu’s newsfeed product launch which could generate substantially greater (up to +10%) profits for 2017.** Keep in mind that Baidu has a track record for significant earnings surprises.*

3. Revenue Outlook

Wall Street analysts are expecting Baidu to post 10.4USD billion in revenues for FY 2016 – gaining 6% YoY. ** Baidu had revenues for the full year 2015 of 10.25USD billion – up over 30% YoY.* The forecast for 2017 is for 28% sales growth YoY.**

4.Value Buy

Over the past few years Baidu’s share price has lagged its peers – due to large expenses weighing on profits. These expenses are from investment in expanding sales and marketing to capture Chinese market share.

Baidu’s other costs have remained a relatively stable proportion while these expenses have grown (16% of revenue in FY 2013 to 25.7% FY 2015). *

5. Expanding Product Range

The substantial sales and marketing investments will allow Baidu to monetize its new services and products effectively. Baidu has launched a range of new products that will lead to future growth – including a newsfeed product that could attract a market of more than 70 million readers in 2017 and boost revenues through ad sales.*

They have also launched streaming products, a takeout delivery online service, Baidu Maps, Baidu Wallet and other products within identified high growth sectors serving China’s massive population base. Baidu is also pushing aggressively into next-gen technologies such as artificial intelligence, deep learning and self-driving as part of a long term growth strategy.

Overall, if earnings growth materialises as planned, Baidu will succeed in its short and long term growth strategy of capturing a large share of the Chinese digital economy.** Key to successful returns will be consistently hitting targets over the next few years.**

* Past performance is not a reliable indicator of future performance.

** Forecasts are not reliable indicator of future performance.

Information provided is based on the market research.

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NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
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