The Rise and Fall
In the once invincible world of Chinese tech giants, Baidu and Alibaba have taken a rollercoaster ride in the stock market over the past three years. Baidu’s shares have plunged by 60%, paralleled by a 68% decline in Alibaba’s stock value. This downward spiral has left many investors wondering if these former titans can reclaim their past glory.
Image source: Getty Images.
Baidu’s Path to Evolution
Baidu, the reigning search engine king in China, is facing intense competition from multiple fronts like Tencent’s WeChat, ByteDance’s TikTok, and Alibaba’s integrated e-commerce platforms with embedded search features. Despite commanding a dominant 60% share of China’s search market, Baidu is diversifying through initiatives like Managed Business Pages and transforming its app into an all-encompassing “super app.” Evolving its cloud infrastructure and investing in AI technology show promise, but with over half its revenue still reliant on online marketing, the road to recovery is a challenging one. Analysts foresee a modest 8% revenue growth for 2024, offering a glimpse of hope amidst the storm. At 12 times forward earnings, Baidu appears to be trading at an attractive valuation considering its potential ahead.
Alibaba’s Quest for Redemption
Alibaba, once a beacon of success, faced a regulatory storm in 2021 when Chinese authorities imposed heavy fines and restrictions on its e-commerce platforms. These constraints, coupled with economic downturns and cloud business struggles, have tested Alibaba’s resilience. A mere 2% increase in revenue in fiscal 2023 underscored the turbulent times the e-commerce giant found itself in. However, a silver lining appears on the horizon as analysts project a 9% revenue growth in fiscal 2024. Alibaba plans to bolster its overseas markets and enhance Cainiao logistics services to boost margins. Trading at a modest eleven times forward earnings, Alibaba seems like a bargain waiting to be discovered.
Regulatory Clouds Hovering
Both Baidu and Alibaba navigate precarious regulatory waters, adding to the uncertainty surrounding their future trajectories. Export curbs on advanced AI chips and potential antitrust scrutiny in China pose significant hurdles for these tech behemoths. Until these regulatory storm clouds clear, investors may continue to view their stocks cautiously.
The Verdict: Baidu Steals the Limelight
Despite the challenges both companies face, the tides seem more favorable for Baidu than Alibaba at the moment. With steady growth rates, lesser antitrust scrutiny, and a more diversified business portfolio, Baidu emerges as the more compelling option. Alibaba must stabilize its core e-commerce and cloud businesses before it can be considered a truly undervalued growth opportunity. The battle rages on, but for now, Baidu stands tall.
Should you invest $1,000 in Baidu right now?
Before you buy stock in Baidu, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Baidu wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of March 11, 2024
