- Instruments
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Over the course of the second quarter (Q2) of the calendar year, a number of institutional investors – with Scion Asset Management run by Michael Burry of “The Big Short” fame finding particular mention in the media – loaded up on shares of China search giant Baidu, Inc (ticker: BIDU) as it floundered. The stock has notably not been doing well over the course of the Year Till Date (YTD) and its Q2 earnings were decidedly mixed: while revenue did drop on a quarter-on-quarter basis by 0.4%, it delivered ¥33.93 billion ($4.67 billion) as opposed to analysts’ average estimate of ¥33.55 billion.
There are likely several factors behind the uptick in share “buy-ins”, most of which is related to specific trends in key line items.
Trend AnalysisAs of the first half (H1) of the company’s Fiscal Year (FY), trends in revenue indicate that it will underperform the previous FY by about the same rate as the latter had outperformed:
Source: Company Information; Leverage Shares analysis
To many investors in the West, Baidu is perhaps best known/described as China’s “Google” in that its mainstay is ostensibly its search engine. Unlike in the Western Hemisphere – where Google reigns supreme with a 90%-plus market share – China’s search space seems a little more fragmented:
Source: StatCounter Global Stats; Leverage Shares analysis
Among China’s homegrown search engine options outside of Baidu, Tencent’s Haosou – which is optimized to crawl through Chinese social media, particularly the near-ubiquitous WeChat (also by Tencent) – has been the only domestic competitor that is estimated to have occasionally shown signs of sustained periodic uptrends while the mobile-only search engine Sogou – developed by Alibaba – is steadily flattening away from consequence.
While Baidu is estimated to have come close to breaking through to the 90%-plus market share towards the end of 2021, this is estimated to have declined in favour of a Western competitor: Microsoft’s Bing.
Within the “Great Firewall of China”, citizens’ curiosity is a matter of intense scrutiny that search engines must necessarily tread lightly through. In other words, a proactive and “censorious” paradigm works out best in terms of managing regulatory risk. Microsoft has long worked on building out where the likes of Google have largely abandoned efforts to make inroads by building out a censorship framework that U.S. lawmakers have contended is more rigorous than domestic engines. Microsoft, however, maintains that the Chinese version of Bing is “the least censored search engine” in the country.
However, there are numerous workarounds when curiosity isn’t in certain matters and is instead (for example) of a more commercial nature. Herein, the company has traditionally shone. In its “Core” segment, the company’s online marketing division is the workhorse of the company primarily via the Baidu App while cloud services – much like Google Cloud or Amazon’s AWS – has been a division that has been nurtured cyclically and led to progressively stronger payoffs. Within this division also lies its driverless taxi venture “Apollo Go”, which (as of Q2 2024) offers 100% fully driverless ride-hailing services in practically the entirety of Wuhan, a Chinese city of some renown even among those not entirely proficient in China’s geography. A relatively recent entrant to the company’s ranks has been ERNIE, a chatbot in the vein of ChatGPT, which is being made available to a wide swathe of corporate clients at increasingly higher cost-effective pricing bands.
Like many tech giants, the company also owns iQIYI, a long-from video platform in the vein of Amazon Prime, Apple TV and so many others.
Segment-wise trends show some interesting trends:
Source: Company Information; Leverage Shares analysis
Note: Division-wise line items are very limited in quarterly releases, unlike in annual reports.
While both “Core” and “iQIYI” are trending below par in terms of revenue as of H1 2024, “Core” shows a positive uptrend in net income as the company optimizes utilization of infrastructure and capabilities. Content production and distribution is often a gruesome business with high capital usage and uncertain payoffs. From FY 2020 till 2022, iQIYI’s was no different and delivered net losses on the company’s bottom line. This changed in FY 2023 when net income went positive with $275 million. In fact, throughout FY 2020 till then, net losses steadily declined. As of now, iQIYI’s net income trend – predominantly driven by subscriptions – remains positive but is trending towards a little under 75% of that recorded in the previous FY.
Market TrendsOver the course of the year through the date of the earnings release (i.e. the 22nd of August), both the company’s ADS and Hong Kong-listed stock (ticker: 9888.HK) have had a strongly-correlated downtrend with the ADS being slightly less of an underperformer with a loss of 31.32%
Source: Leverage Shares analysis
Traded volumes for the Hong Kong stock on average have been 2.78 times that seen in the ADS for the same period. However, ADS traded volumes spike much higher than the stock’s on moments when prices trend upwards. On the day before the earnings release, ADS volumes spiked upwards while Hong Kong traded volumes dipped.
While it is indeed true that online marketing driven by the search engine is flagging due to economic headwinds cooling the average Chinese consumer’s appetite for consumption, sophisticated investors are likely sensing one critical feature: the company’s consumer mix is increasingly “corporate”.
The launch of ERNIE 4.0 Turbo in June 2024 that is designed to run faster, at lower cost and offering superior capabilities for typical use cases as compared to ERNIE 4.0 as well a “native” AI Cloud developer community numbering at 14.7 million have fostered a stack of applications across the spectrum of corporate interfaces within Baidu’s ecosystem. In Q2 2024, 51% of online marketing revenue was derived from “Managed Page”, wherein clients can build an account and use Baidu ecosystem apps and tools to engage with users without maintaining their own website and paying for software, server and bandwidth costs.
Simultaneously, the company also reports that it’s working on renovating its search algorithms which it concedes will be a substantial cost in the short term but believes will lead to greater long-term success. Given the complexity of the task the likes of Baidu is into, this belief is an interesting proposition for some investors. While the short-term top-line trends (i.e., in revenue) won’t endear the stock to many retail investors, its ongoing consumer mix transformation has been piquing the interest of the long-term institutional investors who consider the current valuation to be ideal for “buying the dip” as part of a mid- to long-term strategy. Tactical investors will likely find mild bullish patterns developing in the stock for short periods over the course of this quarter.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Share this:
By subscribing here, you agree with our Privacy Policy and you will receive our newsletters. You can unsubscribe at any time by following the link at the bottom of each newsletter.
Never miss out on important announcements. Get premium content ahead of the crowd. Enjoy exclusive insights via the newsletter only.
Terms and Conditions
Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.
Terms and Conditions
Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.
