When Baidu (NASDAQ:BIDU) reports its third-quarter earnings on Tuesday, investors will look out for recovery in advertising sales, while accessing the Chinese search engine operator’s plans for expanding its generative AI efforts.
Wall Street expects the Beijing-based company to post Earnings Per Share (EPS) of $2.34 during the quarter. Revenue is expected to be $4.71 billion, implying a rise of 3% year-over-year.
Baidu’s revenue faced significant challenges due to pressure from a slow economy and China’s strong Covid policy. However, the easing of lockdowns encouraged businesses, especially verticals including healthcare, business services, local services and travel, to increase spending on advertisement, helping Baidu’s ad sales to slightly bounce back.
Seeking Alpha analyst Dilantha De Silva said that a strong Q3 performance may not result in an immediate change in investor sentiment but will “strengthen Baidu’s comeback story from the lows of 2022.”
However, some analysts are sceptical on the ad market recovery. Earlier this months, Benchmark analysts lowered their Q3 revenue estimates to account for softer offline ad spending by small and midsize enterprises and said the U.S. chip embargo remains an overhang for the sector as a whole.
In October, several firms also cut their estimates and price target on Baidu, noting the same China ad market weakness and project delays impacting the cloud business.
On the brighter side, Baidu’s integration of its AI offering Ernie bot to its products, might give it competitive advantage, especially given its dominance in China’s search engine space.
“Baidu’s own chatbot could help customers find better products, enhance the search and shopping experience, which may in turn lead to higher conversion rates… which could further be an accelerant for Baidu’s recovering digital market business,” pointed out another Seeking Alpha analysis.
Over the last two years, Baidu has beaten both revenue and EPS estimates 100% of the time.
Seeking Alpha analysts, Wall Street and Seeking Alpha’s Quant ratings are bullish and consider the stock “Buy” and above.
Over the last three months, EPS estimates have seen four upward revisions and nine downward revisions, while revenue have seen no upward revisions, compared to 16 downward moves.
Baidu stock has fallen ~7% so far this year.