Baidu, Inc. BIDU recently announced a public offering of notes aggregating $950 million. These notes have been issued in two tranches of different amounts, with varying coupon rates and maturities.
The first tranche of $650 million carries an interest rate of 1.720% and is due in 2026 while the second tranche of $300 million, which has an interest rate of 2.375%, is due 2030.
The company stated that the transaction proceeds will be used to repay the existing debt.
Notably, the stock has underperformed the industry it belongs to on a six-month basis. The company’s shares have gained 27.6% compared with the industry’s growth of 30.6%.
Baidu’s Cash Position
At the end of second-quarter 2020, cash, cash equivalents and short-term investments were RMB154.1 billion ($21.80 billion). Free cash flow was RMB 7.3 billion ($1.04 billion) and capital expenditures were RMB 854 million ($121 million).
We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities, further improving its prospects. The senior notes’ offering will bring down the company’s cost of capital, in our view, thereby strengthening the balance sheet and supporting growth.
Baidu, Inc. Price and Consensus
Baidu, Inc. price-consensus-chart | Baidu, Inc. Quote
Baidu provides Internet search services in China. It also offers a China-based language search platform for businesses to reach customers.
Lately, Baidu is becoming the most significant and dominant general purpose technology. Its increasing presence in the autonomous driving space is helping it improve competitive position.
Last month, the company revealed that the Apollo Go Robotaxi service is now available in Beijing, China. The service covers about 700 kilometers across China, and features about 100 pick-up and drop-off stations across several residential as well as business areas in Yizhuang, Haidian, and Shunyi districts of China.
In addition to Beijing, the company made the Apollo Go robotaxi service available in China-based cities of Changsha and Cangzhou. This makes Baidu the only company with robotaxi pilot operations in multiple cities across China. Additionally, it teamed up with Volvo to launch Level 4 vehicles in 2021.
Some of the current buoyancy surrounding the shares is related to the company’s dominance in the mobile search market and online video, as well as consistent product development efforts. Strong focus on leveraging the AI platform has been aiding it to provide an improved user experience.
However, higher promotional expenses, heavy spending on new growth areas and increasing competition in its own search platform pose concerns.
Zacks Rank & Stocks to Consider
Baidu carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Dropbox DBX, Etsy, Inc. ETSY and Intuit Inc. INTU, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rate of Dropbox, Etsy and Intuit is pegged at 34.4%, 26.5% and 12.3%, respectively.
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