Shares of Baidu (BIDU -5.44%) fell 33.8% in May, according to data from S&P Global Market Intelligence . The Chinese search engine and digital advertising leader's decline was propelled by pressures stemming from the U.S./China trade dispute, as well as a miserable quarterly report.
Baidu reported first-quarter earnings after the market closed on May 16, delivering sales, earnings, and guidance that came in well below the market's expectations. Significant headwinds for the company's digital advertising business, mounting expenses at the business and its iQiyi streaming video spinoff, and the tumultuous trade situation crushed the stock last month and raised questions about what lies ahead.
Baidu's adjusted Q1 revenue climbed just 8% year over year in U.S. dollars, but in local currency, growth came in at 15% -- illustrating the impact that unfavorable foreign exchange rates moves are having. The company posted a net loss of roughly $47.5 million -- its first quarterly loss since going public. Excluding one-off investments and expenses, net income for the period came in at $144 million -- down roughly 80% year over year. It was also announced that Hailong Xiang, who headed the search business and had been with the company for 14 years, would be resigning for personal reasons.
On the heels of that disappointing report, Baidu announced that it would be buying back an additional $1 billion worth of stock -- bringing its total share repurchase authorization to $1.5 billion. This would seem to signal that the company considers its stock undervalued, and could create a small earnings catalyst as repurchased shares are retired from the outstanding count. However, as The Motley Fool's Leo Sun points out, there are reasons to be skeptical about whether the buyback will have meaningful positive impact, or whether now is the right time to pursue such a move.
Baidu is trading around a five-year low, and is valued at roughly 12.5 times trailing earnings. However, it's worth pointing out that more unexpected twists and turns could be on the way, and in some respects, the company has not done a good job of guiding shareholders for what to expect from the business. That's a characteristic that's unfortunately not unusual among Chinese tech companies, and slowing economic growth in the country and the shaky trade situation with the U.S. further complicate matters. So, while the stock looks cheap and the company may still bounce back and take advantage of its strengths in categories like artificial intelligence, self-driving vehicles, and voice-based operating systems, it's not surprising that its share price has been hammered. Investors should be ready for more volatility.