Summary
- Baidu’s share price has been falling, losing 50% since its peak in May 2018.
- Baidu has been losing its market share since Q4 2014 due to an arise of competitors.
- 2019 was an especially challenging year for Baidu, given the increasing competition from another strong competitor, Bytedance (a private company that owns TikTok)
- Baidu announced a first loss in a quarter in mid-May last year, since it first went through Initial Public Offering (IPO) in 2005.
- To combat the tough competition, Baidu counters with diversification.
[Sources: Channel News Asia, 17 May 2019, Business: Baidu swings to net loss for first time since listing, shares fall; Seeking Alpha, 15 Jan 2020, Baidu Has Problems Not Easily Solved]
WHAT BUSINESS IS BAIDU INC IN?
- Baidu Inc is a tech company in China, that is comparatively named “Google of China”.
- They have a diversity of businesses in search engine, social media platforms (such as forums), online marketing platform, encyclopedia, maps, soft keyboard, AI functions and cloud services.
[Source: http://ir.baidu.com , 2020, Company Overview; Products & Services]
WHAT HAPPENED TO BAIDU INC RECENTLY?
- Baidu Inc’s share price fell tremendously since its highest in mid-2018 due to intense competition.
- Baidu was focusing on its search engine and online advertising businesses and slow to diversify its businesses. As a result of fierce competition, it lost its market share tremendously, -19.9% since Q4 2014.
[Source: Marketmechina.com, 3 Oct 2019, Baidu search engine market share in China Sep 2019]
| 66% |
[Source: Chinainternetwatch.com, 16 Mar 2015, China Search Engine Market Overview in 2014]
- Baidu faced its first loss-reporting quarter in mid-2019.
- To combat the heated competition, Baidu has decided to improve on their current businesses and diversify itself.
- An example of diversification Baidu Inc carried out, was to invest in Artificial Intelligence, through Neusoft, targeting to work with smart cities and healthcare sectors.
- Diversification and improvement efforts seem to have helped, as Q3 2019 revenue came in at approximately 28 billion yuan, beating average analyst estimates of 27.53 billion yuan.
[Source: http://ir.baidu.com/static-files/5005840a-db72-4446-8c15-2f55b7518d39]
- Market seems to be affirmed by the efforts of the tech giant despite China’s slowing economy in Nov 2019, as shares increased about 5% in post-trading hours, closing at US$107.36.
[Sources: Channel News Asia, 10 Sep 2019, Baidu to invest US$202 million in Chinese AI company Neusoft; The Business Times, 7 Nov 2019, Baidu’s revenue beats estimates in defiance of slowing economy]
WHAT WILL HAPPEN TO BAIDU INC IN THE FUTURE?
- Baidu Inc have diversified further and fought aggressively in clinching deals to help in their expansion.
- With the expansion plans, it will likely be able to experience growth in revenue through the diversity of revenue generating channels.
- Combating the rising competition from direct competitors like Bytedance, Baidu Inc becomes watchful in their spending.
- Besides increasing number of income channels, diversification will help to reduce overall risk of the company.
- Baidu Inc is increasing its exposure through improved technology, such as its keyboard application. This smart keyboard technology is believed to be used to work hand in hand in improving its artificial intelligence (AI) algorithm, which will leverage on its provision of services in other aspects of technological channels provided to Baidu’s consumers.
- It has come up with its mobile application “Baidu App” to complement its slow movement towards mobile, combating its direct competitor, Bytedance.
- It have also added another revenue channel to its company through iQiyi, a video streaming service, comparatively to Netflix. The number of subscribers grew to 31% year-on-year while its revenue is up 7% year-on-year.
- It also managed to clinch partnership with Tesla, delivering map solutions for Tesla in China. This will mean that Baidu will currently have an exclusive revenue channel, which will help to improve the financial situation of Baidu Inc, at least in the near future.
- With the map technology collecting data, mapping out China, it is assisting in Baidu Inc’s plan to develop self-driving cars through its subsidiary brand, Apollo.
- Thus far, it’s decisions are quite sound, ranging from diversifying its risk and increasing revenue channels, to leveraging on AI to improve its businesses.
- My take is that Baidu Inc has time to prove itself in the near future. If all the decisions of the company are well implemented, it is likely that it will be able to perform positively and outperform its competitors.
[Sources: CNBC, 10 Jan 2020, TECH: How China’s tech trio — Baidu, Alibaba and Tencent — could fare in 2020; Markets Insider, 14 Jan 2020, Baidu Announces Smart Words Prediction Feature on Facemoji Keyboard App; Capital Watch, 17 Jan 2020, Baidu Strikes Deal With Tesla to Deliver Map Solutions in China]
