Chinese stocks took a hit in recent weeks, as regulatory headwinds keep dragging them down.
Baidu, Inc. (NASDAQ:BIDU) dropped over 20% in this quarter, almost undoing the entire parabolic run that saw the stock nearly tripling between Q4 2020 and Q1 2021.
Some institutions are starting to question whether China is worth the gamble because its unstoppable force – growth, is now meeting an immovable object - the government.
Latest Earnings and Developments
- Q2 Non-GAAP Earnings per average diluted share (EPADS): US$2.39 (beat by US$0.33)
- GAAP EPADS: US$ -0.26
- Revenue: US$ 4.86b (beat by US$80m)
- Q3 Guidance Revenue US$4.7b to US$5.2b (consensus US$5.12b)
CEO Robin Li quoted the new AI business as the driver of the strong growth. Earlier this year, Baidu raised money for an AI chip company at a standalone valuation of US$2b.
AI growth directly supports the plan to dominate the Robo-taxi industry through Apollo Moon. So far, its autonomous driving has accumulated 7.5 million test miles. The goal is to have a fleet of 1,000 self-driving cars within 3 years. A low cost of US$75,000 per T4 autonomous vehicle should help capture the market share in the future.
Outlining the Ownership
Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies.
Baidu is a pretty big company. It has a market capitalization of US$58b. Usually, institutions would own a significant portion of a company this size. In the chart below, we can see that institutions own shares in the company. Let's delve deeper into each type of owner to discover more about Baidu.
What Does The Institutional Ownership Tell Us About Baidu?
Many institutions measure their performance against an index that approximates the local market. So, they usually pay more attention to companies that are included in major indices.
Baidu already has institutions on the share registry, and they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community.
However, it is best to be wary of relying on the supposed validation with institutional investors. They, too, get it wrong sometimes. If multiple institutions change their view on a stock simultaneously, you could see the share price drop fast. It's, therefore, worth looking at Baidu's earnings history below.
Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Baidu is not owned by hedge funds.
Our data shows that the largest shareholder is the CEO Yanhong Li, with 20% of shares outstanding. For context, the second-largest shareholder holds about 3.8% of the shares outstanding, followed by ownership of 2.8% by the third-largest shareholder.
A deeper look at our data shows that the top 25 shareholders collectively hold less than half of the register, suggesting a large group of small holders where no single shareholder has a majority.
While studying institutional ownership data for a company makes sense, it also makes sense to research analyst sentiments to gauge the sentiment. There are a reasonable number of analysts covering the stock, so it might be helpful to find out their aggregate view on the future.
The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are founders or CEOs.
Insider ownership is positive when it signals leadership is thinking like the actual owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.
Our most recent data indicates that insiders own a reasonable proportion of Baidu, Inc.It has a market capitalization of just US$58b, and insiders have US$12b worth of shares in their names. That's quite significant.
Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.
General Public Ownership
With a 30% ownership, the general public has some degree of sway over Baidu. While this size of ownership may not be enough to sway a policy decision in their favor, they can still make a collective impact on company policies.
While it is well worth considering the different groups that own a company, other factors are even more critical. Case in point: We've spotted 4 warning signs for Baidu you should be aware of, and 2 of them are a bit concerning.
Ultimately the future is most important. You can access this free report on analyst forecasts for the company.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12 months ending on the previous date of the month the financial statement is dated. This may not be consistent with full-year annual report figures.
Valuation is complex, but we're helping make it simple.
Find out whether Baidu is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.
Baidu, Inc. offers internet search services in China.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
|Analysis Area||Score (0-6)|
Read more about these checks in the individual report sections or in our analysis model.
Flawless balance sheet with reasonable growth potential.