Baidu (BIDU) Shares Jump on Impressive Earnings Beat
Baidu (BIDU), the so-called Google of China, released third quarter earnings late Thursday that pleasantly surprised the market, sending BIDU shares firmly higher for Friday's trading session.
Per-share profits actually fell on a year-over-year basis, but the bottom line of $1.43 per share was better than the $1.24 per share of BIDU analysts were collectively expecting. More important, every bit of the 36% decline in total net income was attributable - and then some - to heavy investments Baidu is making on the O2O, or online-to-offline arena. As proof that the Chinese search engine is still making strong forward progress, revenue was up 36% on a year-over-year basis, to $2.89 billion.
Just a few weeks ago, the company committed a sum of $3.2 billion to be invested in online-to-offline ventures... an effort to sell physical goods and services via the internet. While this is in effect what Google aims to do with its advertisement, where Baidu differs from Google is that it's physically sourcing many of the goods and services being marketed through its search engine. For example, the $3.2 billion earmarked for O2O investments will be used entirely to acquire Chinese e-commerce site Nuomi, which compares to the United States' Groupon.
Looking ahead, Baidu believes the top line will grow between 29.5% and 33.4% for the fourth quarter, which would put Q4 revenue somewhere between $2.86 billion and $2.95 billion. While Baidu doesn't offer earnings guidance, presumably, the company will continue booking the costs associated with the purchase of Nuomi, suggesting lower earnings figures are in the cards again even though revenue growth should be brisk.
BIDU Weekly Chart
The bullish response to earnings on Friday morning simply extends a rally (and rebound) effort that first materialized in early October... which followed a rather dramatic 46% pullback from the stock's late-2014 peak near $250. While the momentum seen over the course of October is impressive, this week's bullish opening gap could present a technical challenge for BIDU shares. Contrary to popular belief, however, not every chart gap has to be filled.