Shares of Baidu (NASDAQ:BIDU) are moving higher after the company posted better-than-expected financial results this week, but keeping the good times going has been a problem lately. Baidu was consistently trading in the triple digits for six years before buckling below $100 in mid-August. The stock clawed its way out, only to fall back into double digits on three separate occasions this fall. 

Avoiding a fifth drop back to revisit the stock's six-year lows is essential, but with Wednesday night's blowout third quarter lifting Baidu shares to their highest level since early July, there are reasons to be optimistic. Baidu seems to be back, but there's still a lot left to prove. 

About two dozen Baidu researchers posing in front of the corporate office logo.

Image source: Baidu.

Staying alive

There was plenty to like in Baidu's latest report, as long as you went in familiar with all of the headwinds that the former dot-com darling is facing. Revenue of $3.93 billion was flat from the prior-year showing -- and up just 3% once you back out the contributions a year earlier from announced divestitures -- but analysts were holding out for $3.88 billion. Baidu's own guidance three months ago was calling for revenue to clock in between a decline of 5% and an increase of 1%, so it landed comfortably ahead of its midpoint. 

Adjusted net income plunged 35% to $1.76 a share, but that was actually a lot better than the $1.15-per-share profit that analysts were modeling. We've now had back-to-back quarters in which Baidu's adjusted earnings check in at least 53% above Wall Street's consensus. 

Guidance is also encouraging, once again with the caveat that you are familiar with the online advertising challenges weighing on Baidu in China and the margin-gnawing initiatives keeping its bottom-line results depressed. Baidu's outlook calls for $3.78 billion to $4.02 billion in revenue for the fourth quarter, which would represent a range of a 1% decline to a 6% increase. After flat year-over-year growth on the top line in the third quarter, the midpoint of its new guidance suggests that business is slowly starting to turn the corner. Baidu doesn't provide earnings guidance, but Wall Street doesn't see the bottom line improving until next year. 

This wasn't a perfect quarter for Baidu, but there's hope that things are starting to get better. Wall Street seems to agree, and not just because of the stock's pop on Thursday morning. Morgan Stanley upgraded the shares following the report, lifting its rating from equal weight to overweight. Mizuho analyst James Lee is raising his price target from $165 to $175, a modest revision but one that represents a beefy 63% of upside off of Wednesday's close. 

The risks remain, as investing in Chinese stocks is not for the timid despite the tempting values. Baidu will continue be volatile. However, with the stock trading at its highest level in four months -- before its four dips into double-digit territory -- it's easy to believe that the worst is over for Baidu shareholders.