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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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