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Baidu’s Search for Growth Isn’t Over

Baidu’s Search for Growth Isn’t Over
Haifeng Wang, chief technology officer of Baidu, spoke at the company’s developers conference in Beijing in July.


Gilles Sabrie/Bloomberg News

Good news: Search giant


BIDU 13.52%

has become a value play. The bad news is that China’s answer to Google is no longer a growth stock.

Operating income last quarter almost halved from a year ago, the company said in a results announcement Wednesday after the market close. That, however, was enough to beat grim expectations, and its Nasdaq-listed shares rose 4% in after-hours trading.

The big reason for the beat was cost-cutting: Its sales, general and administrative expenses came to 17% of revenue last quarter, compared with 20% a year ago.

After shedding nearly two-thirds of its market capitalization from last year’s peak, Baidu now offers good value. The company is sitting on around $11 billion of net cash and short-term investments, including the $1 billion it got from selling down its shareholding in Trip.com recently. Its remaining 12% stake in the online travel agency, together with its 57% share of video subsidiary


are worth $9.5 billion. That means its core search business, which generated around $1 billion of free cash flow last quarter alone, is valued at just $17 billion.

The problem for investors is that growth seems elusive. China’s online advertising market has undergone dramatic changes over the past year after ByteDance, owner of short-video app TikTok, entered the scene. The company’s addictive apps—Douyin, the Chinese version of TikTok, and news aggregator Toutiao—have attracted eyeballs and ad dollars alike. Baidu’s core advertising revenue fell 9% last quarter from a year ago, the second consecutive quarter of decline. Its overall revenue was stable thanks to subscription growth in iQiyi, a Netflix-like video service, but that business remains in the red.

Baidu stock may now be cheap enough that it won’t fall much further. For a return to the good old days, though, the company will need to show growth potential.

Write to Jacky Wong at JACKY.WONG@wsj.com

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