It's getting close to showtime for Baidu (BIDU 0.75%). China's leading search engine reports fresh financial results after Tuesday's market close. Baidu has typically been volatile during earnings season, and there's no reason to think that things will be any different this time around.
Baidu investors aren't risk averse by nature. You don't buy into China's dot-com darling without being well versed on the ups and downs. Let's take a look at some of the things that can propel Baidu stock higher following Tuesday afternoon's second-quarter earnings release.
Image source: Baidu.
1. Baidu needs to beat its revenue targets again
Baidu's guidance back in late April was calling for revenue between $3.97 billion and $4.17 billion for the second quarter, a gain of 26% to 33% -- or 28% to 34% if we nix disposed and discontinued businesses from the prior year's results. Analysts are perched at $4.03 billion, near the low end of Baidu's range.
Investor expectations will likely be higher than both Baidu's guidance and what Wall Street is settling for this time around. Baidu topped its revenue forecast last time out, just as it did three months before that. Baidu has historically put out conservative guidance that it usually beats, and the market will expect more of the same here.
2. Momentum needs to turn around
Long-term Baidu investors aren't exactly smarting. The stock has been a beast over the years, and it's trading 9% higher so far in 2018. However, the stock has taken significant steps back in back-to-back days -- and back-to-back weeks. It also doesn't help that the last major analyst to chime in with a change of opinion did so with a downgrade.
OTR Global lowered its rating on Baidu stock from mixed to negative last week. Channel checks show spending by ad managers has cooled as competition heats up with other search and social media platforms. OTR Global is now targeting 3% to 6% growth in spending for the second quarter, just below the 4% to 7% clip in the first quarter.
Wall Street pros obviously aren't infallible. It's just not encouraging to see a downgrade mere days before an earnings report. An analyst wouldn't be going out on a limb to jump into the bear camp this close to a quarterly announcement if it didn't think that the report would be disappointing.
3. Advertisers need to keep spending more
The market's response to Baidu's numbers won't be limited to the search giant's top- and bottom-line results. Guidance for the new quarter naturally plays perhaps an even bigger role in Wall Street's reaction to a report, but it's not the only thing that needs to line up kindly for Baidu.
Investors will ignore the number of active online marketing customers leaning on Baidu's platform for leads. It rose a mere 5% in the first quarter and has been negative before that as Baidu culled its Rolodex following a medical marketing scandal in 2016. However, investors sidestep that metric as long as Baidu's milking more money out of advertisers. This hasn't been a problem in the past. Average spend per marketer rose 19% in the first quarter. However, with OTR Global's bearish take on ad spending it will place even more focus on that important metric.
