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Here's Why Baidu and iQiyi Soared Today

By Danny Vena - Feb 3, 2020 at 5:10PM

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China's search leader and its streaming-video offspring postponed earnings, but there was good news as well.

The outbreak of a novel coronavirus in China has made plenty of headlines, and has affected companies in China and across the global stage in a variety of ways. Many public facilities have been closed; travel restrictions remain in effect; and many consumers have been instructed to stay in their homes and avoid public gatherings.

As the leading Chinese search engine, Baidu (BIDU 14.14%) has not been immune to the outbreak of that has ravaged the country, nor has its streaming video offspring iQiyi (IQ 9.22%). In a press release late Friday, the company said that because of the coronavirus, its fourth-quarter financial report -- initially scheduled for Feb. 6 -- was being postponed until Feb. 27, "in light of the evolving situation." iQiyi issued a similar statement.

The news wasn't all bad, however, as Baidu issued revised guidance that was surprisingly strong and sent both stocks soaring.

An arrow spiking higher against a backdrop of prices on a stock ticker

Image source: Getty Images.

Increased guidance -- and confidence

Baidu stock closed up nearly 6%, while iQiyi gained more than 7%. The catalyst for the move was the release of revised guidance that was much stronger than investors had expected.

Baidu said that for the fourth quarter, it expects revenue to be in the range of 28.3 billion yuan ($4.06 billion) to 28.9 billion yuan ($4.15 billion), which would represent an increase of between 4% and 6% year over year.

The move came as a surprise to investors, as Baidu's previous guidance range was much more subdued: It forecast revenue in the range of 27.1 billion yuan ($3.89 billion) to 28.7 billion yuan ($4.12 billion), which would represent a loss of 1% to a gain of 6% year over year. Baidu also indicated that its core revenue would grow between 4% and 6% year over year, compared to its previous guidance for flat to 6% growth.

Baidu also said it expects net income to be in the range of 6.2 billion yuan ($890 million) to 6.7 billion yuan ($970 million), which is assuming growth in the company's core business of between 83% to 90% year over year. On an adjusted basis, Baidu is forecasting net income in the range of 8.9 billion yuan ($1.28 billion) to 9.4 billion yuan ($1.36 billion), which would represent growth in Baidu's core of between 50% and 55% year over year.

Regarding the evolving health crisis, Baidu said that in an effort to "help control the epidemic, the Company is taking precautionary measures, including extending its employees' Chinese New Year holiday, which was originally scheduled from January 24, 2020 to January 30, 2020, and requesting employees to work from home for a time period after the holiday."

It's important to note that iQiyi left its guidance intact, which called for total net revenue to be between 6.86 billion yuan ($960 million) and 7.28 billion yuan ($1.04 billion); that range runs from a loss of 2% to a gain of 4%, compared to the prior-year quarter. Since iQiyi makes up such a significant part of Baidu's results, investors are hoping the revision in Baidu's guidance bodes well for both companies.

The turnaround continues

Baidu has been in the midst of a multiyear turnaround, after the stock plunged last year to its lowest level since 2013. The outbreak of coronavirus couldn't have come at a worse time for China stocks; they have already been hit hard by a slowing economy and the trade war with the U.S., though the two countries recently reached a preliminary agreement to end trade hostilities.

Three young children sitting on a couch, looking at a tablet

Image source: Getty Images.

iQiyi has been fighting to stay above the fray in a three-way streaming video battle with Tencent Holdings' Tencent Video and Alibaba Group Holding's Youku Tudou. The company has been spending heavily on original content, impacting not only its results, but that of corporate parent Baidu as well.

Investors will get the latest updates from both Baidu and iQiyi after the market close on Thursday, Feb. 27.

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Stocks Mentioned

Baidu, Inc. Stock Quote
Baidu, Inc.
BIDU
$136.19 (14.14%) $16.87
iQIYI, Inc. Stock Quote
iQIYI, Inc.
IQ
$3.91 (9.22%) $0.33

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