Shares of Baidu (BIDU 1.02%) are showing signs of life in 2020. China's leading search engine is trading 6% higher this young year, outpacing the market's 4% year-to-date gain. Baidu's move may not seem like much, but after back-to-back years of declines -- shedding nearly half of its value in that time -- it's a refreshing change for a stock that just a couple of years ago was one of the market's hottest tech stocks.
Baidu continues to be a winner for investors who got in early. If you invested $100 at the time of Baidu's IPO nearly 15 years ago that position would be worth $4,963 today. The stock that went public at $27 in the summer of 2005 -- executing a 10-for-1 split five years later, adjusting the IPO price to $2.70 -- is nearly a 50-bagger despite currently trading for slightly less than half of its 2017 peak value. Baidu has come a long way, and it's been a volatile 15 years.
Image source: Baidu.
Betting on Baidu
We're two weeks away from Baidu peeling back the curtain on its fourth-quarter financials, but things have been far from perfect lately. China's slowing economy, a weak online ad market, and Baidu's own miscues have weighed on its financial results.
Reported revenue has actually declined in its two latest quarters, and its bottom line is faring even worse. Thankfully for Baidu investors there are signs that the fundamentals are bottoming out. Two weeks ago Baidu revised its fourth-quarter guidance higher. It sees its top line rising 4% to 6%, well ahead of its November outlook that called for as much as a 1% decline at the low end of that range. Baidu's guidance came several weeks after the end of the quarter, so it's pretty fair to say that revenue is finally checking in with year-over-year improvement.
Baidu's fate rests in the state of the Chinese economy getting back on track, and obviously that's a hard sell these days with coronavirus scares shutting down businesses and stirring up more panic than consumer spending. Despite this bleak backdrop, analyst profit targets for the fourth quarter as well as the year ahead have been inching higher when it comes to Baidu.
The stock naturally would have to more than double to revisit its all-time high in late 2017. It was a 100-bagger off of its IPO at its peak, and turning $100 into $10,000 is no small feat. However, Baidu as a 50-bagger isn't too shabby for investors taking a long-term view in gauging its financial success. There will always be risks when investing in Chinese stocks, but Baidu has rewarded investors through the volatility. With the shares, revenue guidance, and analyst profit estimates all moving higher so far in 2020, this may not be a bad year after all for Baidu.
