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Nasdaq-100 component Baidu, Inc. (BIDU) is trading lower by less than 1% in Thursday’s pre-market session after meeting fourth quarter 2020 revenue guidance and beating profit estimates by a small margin. The Chinese search engine giant earned RMB 20.08 per share during the quarter, or $3.10 per share in greenbacks, while revenue rose 4.8% year over year to RMB 30.26 billion ($4.68 billion). A brief uptick after the news was quickly extinguished by selling pressure.
Key Takeaways
- Baidu beat fourth quarter 2020 earnings per share (EPS) estimates while posting in-line revenue.
- The stock had been trading at an all-time after the company entered a partnership to produce autonomous vehicles.
- A mild sell-the-news reaction has done little or no technical damage.
- The rally has reached resistance at a multi-year trendline.
The stock has fully recovered from a steep decline following last year’s coronavirus outbreak in Wuhan. Robin Li, co-founder and CEO, noted that “Baidu ended 2020 on a solid note with our business benefiting from improving macroeconomic environment and the digitalization of industrial internet. Our focus on innovation through technology is paying off with Baidu Core non-marketing revenue growing 52% year over year in the fourth quarter.”
Baidu shares turned higher in October and accelerated to the upside in January after the company announced a partnership with Chinese automaker Zhejiang Geely Holding Group to produce electric vehicles embedded with the company’s Apollo self-driving technology. The news has forced Wall Street to raise price targets on Baidu, in line with other manufacturers. The new operation is making strides, recently getting California’s approval to test driverless vehicles on Sunnyvale roads.
Wall Street consensus on Baidu has surged since the electric vehicle announcement, lifting to a “Strong Buy” rating based upon 10 “Buy” and 2 “Hold” recommendations. No analysts are recommending that shareholders close positions and move to the sidelines, even though shares have rallied more than 200% since November. Price targets currently range from a low of $190 to a Street-high $376, while the stock is set to open Thursday’s session just $70 below the high target.
Tip
Macroeconomics is a branch of economics that studies how an overall economy – the market or other systems that operate on a large scale – behaves. Macroeconomics studies economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.
Baidu Monthly Chart (2011 – 2021)
TradingView.com
The company came public on U.S. exchanges at $6.60 in August 2005 and entered an immediate downtrend that posted an all-time low at $4.44 at the start of 2006. The subsequent advance topped out at $42.92 in 2007, yielding a steep decline followed by a 2009 breakout that carved a stairstep pattern into the 2014 high at $251.99. It sold off to $100 one year later and eased into a narrow range-bound action into an October 2017 breakout.
The stock failed the breakout in the third quarter of 2018, after adding just 34 points, and rolled into a steep decline that accelerated to a 10-year low in 2020’s pandemic decline. It recovered more slowly than other China plays in the second and third quarters, with resistance at $135 limiting gains. Price action finally broke that barrier in December, entering a momentum-fueled uptrend that reached 2017 resistance last week.
An immediate breakout posted an all-time high at $326.50 on Tuesday, while Thursday’s downturn is holding above the weekly low at $298.20, making it the price level to watch in the regular session. A breakdown could signal additional downside into the January high at $264, while a sturdy bounce would set the stage for another round of new highs. Right now, the smart money is betting on a bullish outcome.
Tip
Momentum is the rate of acceleration of a security’s price – that is, the speed at which the price is changing. Momentum trading is a strategy that seeks to capitalize on momentum to enter a trend as it is picking up steam.
The Bottom Line
Baidu is trading marginally lower despite beating fourth quarter EPS estimates and could recover quickly.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.
