Baidu Beats As Clean Technology Ecosystem Rebounds

China Last Night


Baidu Q3 Earnings

Baidu (BIDU US, 9888 HK) reported Q3 financial results before the US market open. Baidu’s search business, similar to Google search, is dependent on advertising revenue, which accounts for 80% of Baidu Core revenue, faced headwinds in Q3 as online education advertising went away, limited travel due to covid restrictions and home furnishings on slowing housing sales. Baidu has been investing proceeds from their search business into new business lines such as their AI cloud solution and Apollo autonomous driving solutions for years. These efforts are doing well as evidenced by AI cloud revenue increasing 76%. The short-term issue is AI cloud revenue is relatively small at $806mm versus the company’s overall revenue of $4.954B. The trajectory is there though.

On the earnings call, management said covid getting under control will impact Q4 though they are optimistic that the situation in 2021. Their Q4 revenue forecast was quite wide, ranging from +2% to +12%. % change is year over year for Q3 2021 to Q3 2020. You’ll notice a significant disparity between GAAP and non-GAAP results (Adjusted). GAAP rules state that investments such as Baidu’s ownership in its spin-off iQiyi (IQ US) needs to be marked down. Adjusted/non GAAP takes the view that these losses don’t actually affect cash. For Baidu, GAAP required them to write down RMB 18.9B as IQ’ stock has struggled. Analysts will look at Adjusted/non-GAAP.

  • Revenues increased +13% to RMB 31.921B ($4.954B) versus analyst estimate of RMB 31.814B
  • Revenue breakdown: Baidu Core +15% to RMB 24.7B ($3.83B); online marketing revenue +6% to RMB 19.5B ($3.02B) and non-online marketing revenue (cloud & AI) +76% to RMB 5.2B ($806mm)
  • Total costs/expenses increased to RMB 29.613B ($4.596B) from RMB 22.076B driven by cost of revenue +35%, R&D +35% and Selling/general/admin expenses +56%
  • Operating Income was RMB 2.3B ($358mm) while Non GAAP operating income RMB 4.7B ($731mm)
  • Net Income was a loss of RMB -17.347B (-$2.692B)
  • Adjusted net income was RMB 5.09B ($790mm) versus analyst estimate of RMB 4.297B and Q 2020’s RMB 6.988B
  • EPS was a loss of RMB -48.18
  • Adjusted EPS was RMB 14.66 versus analyst estimate of RMB 12.20 and Q3 2020’s RMB 20.35
  • Q4 revenue forecast between 2%/RMB 31B ($4.81B) to 12%/RMB 34B ($5.27B)

Key News

Asian equities were largely off with China outperforming, as Shanghai +0.44%, Shenzhen +1.1%, and STAR Board +1.05%. There was little mention of the Biden-Xi virtual summit though the thaw in relations has to be taken as a positive. CNY, China’s renminbi, cheered the news gaining 022% versus the US $ to 6.37.

The clean technology ecosystem was finally able to shake off the negative sentiment of Elon Musk’s selling of Tesla stock. We also news that a US judge has exempted Chinese solar panels from tariffs. Mainland investors cheered the news significantly more than foreign investors in Hong Kong as China’s most heavily traded stocks by value were a who’s of the cleantech ecosystem, led in order by Tianqi Lithium +10%, Longi Green Energy +1.46%, Jiangsu Akcome Science (solar) +10.04%, Gangfeng Lithium +6.62%, China Northern Rare Earth +5.19%, BYD +1.14% and CATL +1.77%. Pretty amazing!

Staples was off a touch as liquor stocks led by Kweichow Moutai -0.72% and Wuliangye Yibin -0.23%. Foreign investors sold -$37mm of mainland stocks on light Northbound Stock Connect volumes. The Hang Seng was off only -0.25% though Tencent’s +1.29% helped the index significantly. Internet stocks less Tencent were off as NetEase (9999 HK) -3.6% was clipped with profit-taking after the strong rally into their solid Q3 results yesterday. This is despite the news they will list their online music business via a Hong Kong IPO. Mainland investors sold Hong Kong stocks small, including Tencent, though Meituan was a small net buy. Healthcare had a strong day while real estate was off -1.39%.

Evergrande’s bond due in April 2022 gained +0.39% to $28.57 while the June 2025 bond was off -0.53% to $23.91 on reports the chairman is selling personal assets to pledge as collateral. China’s coal futures prices fell another -1.24% on reports of a mass mining effort in advance of winter which extends the loss since the October 19th high to -52%. I suspect China’s November PPI will ease in response.

US-listed Chinese ADR Beigene (BGNE US, 6160 HK), $36B of market cap, announced yesterday it will relist on the STAR Board. The company does not utilize the variable interest entity structure though the company is a Cayman entity that holds ownership in the Chinese assets.

Bloomberg is reporting Alibaba might participate in the takeover of struggling semi-chip maker Tsinghua Unigroup. Sure this will be a question during tomorrow’s earnings call. We also have tomorrow.

Bilibili (BILI US, 9626 HK) reported Q3 results prior to the US open. Topline growth was strong as revenue +61% year over year to RMB 5.206 ($808mm) driven by a strong pick up in advertising +110% to RMB 1.172B ($181mm) and value-add services (premium membership programs and broadcasting services) +95% to RMB 1.908B ($296.3mm) while gaming was up only +9% to RMB 1.391.7B ($216mm). That’s the good news…….Operating expenses increased +57% to RMB 2.896B ($449.5mm) leading to net loss of RMB -2.686B ($416mm). Historically investors would have overlooked losses by hyper growth stocks though in today’s environment they are less forgiving.

Baidu spin-off iQIYI (IQ US) also reported this morning though it was a miss across the board. The video entertainment services company has struggled versus ByteDance and other competitors. More to come as we take a deeper dive.

MSCI China All Shares Index


Country performance


Stock performance


Hong Kong Top 10


China Top 10


Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.38 versus 6.39 yesterday
  • CNY/EUR 7.22 versus 7.26 yesterday
  • Yield on 10-Year Government Bond 2.93% versus 2.92% yesterday
  • Yield on 10-Year China Development Bank Bond 3.19% versus 3.18% yesterday
  • Copper Price -0.90% overnight