The fall and rise of China’s search-engine giant Baidu epitomizes the market zeitgeist of 2021 perfectly: a mania for growth and a yawn for value.
Once mentioned in the same breath with Chinese internet titans Alibaba and Tencent, using the acronym BAT, Baidu’s pull has severely eroded compared with its rivals over the past few years. Its Nasdaq-listed shares lost 70% of their value from 2018 to the trough reached in March last year. Its core advertising business is threatened by competitors such as TikTok’s owner, Bytedance, which has attracted ad dollars as users flock to the viral content on its apps.
Baidu reported better-than-expected results for last quarter Wednesday after the market close, helped by its cloud business. But its core search business remains weak: The company’s advertising revenue was flat year-over-year compared with double-digit growth a few years ago.
Despite the anemic growth in its core business, Baidu remains a cash cow. It generated $3.8 billion of free cash flow last year, excluding its unprofitable video subsidiary iQiyi . The company was sitting on $15 billion of net cash at the end of December and its stakes in iQiyi and online travel agent Trip.com are valued at $13 billion. And until late last year, the stock was trading as low as 1.2 times book value, making Baidu a classic value stock.
But value stocks are unloved in the market. It took hopping aboard the electric-vehicle train to help Baidu shares stage an impressive turnaround. Instead of bargain hunters rushing in, the company has hit all the right tones by announcing a foray into EVs—one of the hottest investment themes right now. Baidu said last month it will partner with Chinese auto maker Geely, which controls Volvo Cars, to make EVs. Baidu’s stock hit an all-time high this week after more than doubling since December. Baidu has developed its own self-driving technology platform called Apollo for years, though investors didn’t pay much attention until now.