In this segment from the Motley Fool Money podcast, host Chris Hill and senior Motley Fool analysts Jason Moser, Matt Argersinger, and Ron Gross ponder a pair of troubled tech players. First, they look at Baidu (NASDAQ:BIDU), which reported a massive quarterly profit beat that gave its shares a brief bounce last week.
However, positive sentiment on Baidu reversed the moment the market heard rumors that Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) is working on censored search engines and news apps that would allow it to re-enter China. If Google steps down from the moral high ground it has occupied for the past eight years, it could land with a foot right on Baidu.
Then it's on to TripAdvisor (NASDAQ:TRIP), which reported tepid growth for the last quarter and was punished by Wall Street. Putting its stumbling efforts on instant booking aside, the travel site is still gaining ground in a number of important ways.
A full transcript follows the video.
This video was recorded on Aug. 3, 2018.
Chris Hill: Interesting week for Baidu. Second quarter profits for the Chinese search engine giant came in 45% higher than a year ago but shares of Baidu falling this week on reports that Alphabet is planning to launch a censored version of its own search engine in China. What do you think, Matty?
Matt Argersinger: Google throws the wet blanket. Baidu's results were fantastic. I remember seeing this stock price go up $15 in after-hours trading, only to drop by almost $15 when it opened the next morning because of the Google news. It would be easy for me to dismiss the Google news and say, "Don't worry about it, Baidu has been dominating in China. They haven't had to deal with Google for almost a decade now. They've had this dominance, in terms of search impressions, advertisers." And, does Google really want to launch a search engine where they have to restrict words like "human rights" and "democracy?" It doesn't feel like Google! But, keep this in mind: depending on what report you believe, Android has something like a 70-80% market share on smartphone operating systems in China. So, if this Dragonfly or whatever Google ends up calling it does pass the Chinese censors and becomes able to be sold and serviced in China, an enormous lead right off the bat if they can get it onto the Android system.
Hill: TripAdvisor's stock has been having a good run in 2018. That ended this week when TripAdvisor's second quarter revenue came in just 2% higher than a year ago. You tell me, Jason, is this a legitimate concern? Or is this a speed bump kind of quarter for TripAdvisor?
Jason Moser: I'm not going to be an apologist here. I think we've all been pretty critical with TripAdvisor and the bungle they made with the instant booking platform. But, going through the release, it does feel like this was a pretty harsh reaction to what wasn't really a bad quarter. But, I think any time you have a business like TripAdvisor, that's run into the top line growth headwinds that they've run into, the market is only going to pay up so much for that.
The good thing is, they have a platform that's still very engaged and growing. Users are growing, reviews are growing, and people are doing more with those reviews. It's encouraging to see that they're growing the non-hotel side of the business, as well. A bit of margin pressure there for the quarter. That was also a bit of a comparables thing there.
All in all, it's a healthy platform. I think management really lost a lot of time and money in that instant booking strategy, which just didn't work out. But, it seems like the market is liking the stock a little bit more after that initial sell-off. We'll have to see. I don't know that I'd be terribly concerned right now, but it was a harsh reaction.
Hill: Do you have a sense of what the next move is for TripAdvisor? Obviously, as you said, they put a lot of time and effort into the instant booking. I'm wondering if there's some other monetization strategy that they're working on.
Moser: Primarily, it's Attractions. They're really trying to get to that point where TripAdvisor is a platform that not only you consult whenever you go wherever you go, but then, when you want to book something to do, you're able to do that through TripAdvisor. Hey, listen, when I went to the Bahamas, I told you, everything I found there that we did, we found it on TripAdvisor. Pig island! Do I need to say anything else there? That's worth gold.
As long as they can figure out a way to effectively monetize that going forward on a sustainable basis -- and I think they will -- that's certainly what they're gunning for. And, bringing over a seamless experience to the phone, because those monetization challenges still exist.
Hill: You had me at pig island.