Why Baidu Stock Is Down By 4% Today

Baidu Stock Retreats As Traders Focus On Soft Q3 Guidance

Shares of Baidu gained downside momentum and moved closer to multi-month lows after the company reported its second-quarter results. The company reported revenue of $4.85 billion and earnings of $2.39 per share, beating analyst estimates on both earnings and revenue.

While the report exceeded analyst estimates, the market focused on the soft guidance for the third quarter as Baidu expects to report revenue of $4.7 billion – $5.2 billion. Baidu stated that the current coronavirus situation in China remained uncertain, and it looks that this uncertainty has put some pressure on the company’s third-quarter guidance.

Baidu shares made an attempt to settle above the $355 level back in February but found themselves under huge pressure together with other Chinese stocks and declined towards the $160 level. The soft Q3 guidance and worries about coronavirus in China served as additional negative catalysts, and the stock is trending towards yearly lows at the $153 level.

What’s Next For Baidu Stock?

The main driver of Baidu’s share price perfomance after February 2021 was China’s crackdown on big tech companies. Regulatory risks in China are rising, so traders need strong catalysts to put their money into stocks of Chinese companies.

Unfortunately for Baidu, its second-quarter report did not serve as a positive catalyst due to the soft Q3 guidance. Currently, analysts expect that Baidu will report earnings of $11.41 per share in 2022, so the stock is trading at about 14 forward P/E. Such valuation levels do not look extremely cheap given the potential problems that big tech companies face in China.

In this light, Baidu shares may continue to drift lower until the company comes up with positive catalysts or the market sentiment towards Chinese companies improves. In the near term, there is a material risk that Baidu stock may test yearly lows near the $153 level.

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