Baidu, Inc. (BIDU) is a Chinese company that provides internet search and online marketing solutions. The company operates through two segments—Baidu Core and iQIYI. The search platform on its website allows users to find information online, including webpages, news, documents, multimedia files, voice assistance, online storage, and navigation services.

(Note that BIDU is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.)

Yandex N.V. (YNDX) is a Netherlands-based Internet and technology company that provides search engines and online services. The company operates through six segments—search & portal, taxi, Yandex.Market, media services, classifieds, other business units and initiatives. It offers search, and location-based, personalized, and mobile services that enable users to find information, and communicate and connect over the Internet from desktops and mobile devices.

Alphabet Inc.’s (GOOGL) Google is the most widely used search engine in the world, with a 78.2% market share. Despite its popularity and global dominance, many of its small competitors around the world have been trying to achieve  dominance in their own regions for  some time. Rapid digitalization amid remote lifestyles and increased user activities has allowed these search engines to analyze consumer behavior and current  trends deeply from users’ browser cookies, thus enabling them to provide targeted content, related backlinks and personalized ads. This has helped these companies generate significant revenues and expand their market reach.

Moreover, the fear of cyber-attacks and hacking have been driving these companies to update their user privacy policies and ensure full protection of user data. The global search engine optimization services market is expected to grow at a 20% CAGR over the next five years to reach $103.24 billion by 2025. Based on these factors, we think BIDU and YNDX could benefit substantially.

While YNDX lost 1.2% over the past six months, BIDU surged marginally. In terms of their past nine month’s performance, BIDU is a clear winner with 49.7% gains versus YNDX’s 9.4%. But, which of these stocks is a better pick now? Let’s find out.

Click here to check out our Software Industry Report for 2021

Latest Movements

On May 2, 2021, BIDU opened fully driverless Apollo Go Robotaxi services to the public in Beijing. It is China’s first paid autonomous vehicle service. Using the Apollo Go app, with features including virtual reality navigation and remote car honking, users can locate a robotaxi in the vicinity. With plans  to launch the service  in various cities in future, BIDU expects the commercialization of autonomous driving to alleviate congestion effectively, improve user experience and help achieve carbon neutrality in China.

On April 26, 2021, at the Wanxiang Conference, BIDU’s Mobile Ecosystem Group (MEG) unveiled its new X+Y strategy to advance intelligent search through “servitization” and “humanization” and announced its new “Baidu for a Better Life” brand slogan. Inspired by  demands for faster, closed-loop services from users, BIDU’s new strategy will allow users quicker access to the information and services they need. BIDU aims to deliver a better end-to-end experience for users and strengthen the commercial value of its search tools.

On June 3, 2021, YNDX signed an agreement to form a joint venture with state-owned VTB Bank, IT group LANIT and computer equipment manufacturer Gigabyte Technology to produce servers and data storage systems for data centers and smart device components. The joint venture will build a plant in Russia and plans to partially relocate its server production to Russia from China and Taiwan and install these servers in its own data centers and expand its Yandex.Cloud platform. YNDX hopes this will help it  tap into Russia’s growing market for server hardware.

In an announcement on May 31, YNDX has agreed to buy online fashion retailer KupiVIP. With KupiVIP’s 3000 Russian and foreign suppliers, YNDX hopes this purchase will  help its Yandex.Market segment expand faster in the online fashion market, which is one of the most attractive sectors of Russia’s e-commerce space.

Recent Financial Results

BIDU’s revenue for the first quarter, ended March 31, 2021, increased 24.8% year-over-year to $4.29 million. The company’s non-GAAP operating income came in at $666 million, up 203.5% from the prior-year period. BIDU’s non-GAAP net income is reported to be $656 million for the quarter, which represents a 39.4% year-over-year improvement. Its non-GAAP earnings per ADS increased 40% year-over-year to $1.89. As of March 31, 2021, the company had $7.96 billion in cash, cash equivalents and restricted cash. For the first quarter ended March 31, 2021, YNDX’s revenue increased 55.6% year-over-year to $966.10 million. The company’s loss from operations came in at $14 million, compared to $68.10 million in  income in the prior-year period. YNDX’s adjusted net income decreased 57.2% year-over-year to $29.10 million. Its loss per share is reported at $0.14 for the quarter, compared to  EPS of $0.22 in the year-ago period. The company had $1.23 billion in total cash, cash equivalents and restricted cash as of March 31, 2021.

Past and Expected Financial Performance

BIDU’s revenue and net income grew at CAGRs of 7.5% and 27.5%, respectively, over the past three years. The company’s EPS has increased at a 28% CAGR over the past three years.

Analysts expect BIDU’s revenue to increase 29.2% year-over-year in the current quarter (ending June 30, 2021), 21.3% in 2021 and 14.5% next year. Its EPS is expected to increase marginally in the current quarter, decline 2.5% for the current year, but then increase 20% next year. The stock’s EPS is expected to grow at a 2.65 rate per annum over the next five years.

In comparison, YNDX’s revenue and net income grew at CAGRs of 34.7% and 14.9%, respectively, over the past three years. The company’s EPS has increased at a 12% CAGR over the past three years.

Analysts expect YNDX’s revenue to increase 77% year-over-year in the current quarter (ending June 30, 2021), 55.1% year-over-year in 2021, and 34.8% next year. Its EPS is expected to increase 155.6% in the current quarter, 31.4% in the current year and 63.4% next year. However, analysts expect the stock’s EPS to grow marginally over the next five years.

Profitability

BIDU’s trailing-12-month revenue is 5.3 times YNDX’s. BIDU is also more profitable with a 32.2% EBITDA margin versus YNDX’s 11%.

Also, BIDU’s ROE, ROA and ROTC values of 22.3%, 3.5% and 4.1%, respectively, compare with YNDX’s 4.8%, 1.3% and 1.5%.

Valuation

In terms of non-GAAP forward P/E, YNDX is currently trading at 64.14x, which is 232.3% higher than BIDU’s 19.30x. YNDX’s 5.13x forward EV/Sales is significantly higher than BIDU’s 2.77x.

Also, in terms of forward EV/EBITDA, YNDX’s 32.43x is 182% higher than BIDU’s 11.50x.

Thus, BIDU is more affordable here.

POWR Ratings

While YNDX has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, BIDU has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

Both the stocks have a C grade for Quality, which is justified by their slightly higher-than-industry profit margins. In terms of trailing-12-month EBIT margin, BIDU’s 51.8% is 2.2% higher than the 11.1% industry average. Also, YNDX’s 5.8% trailing-12-month return on common equity is 5.6% higher than the industry average of 5.5%.

BIDU has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. The company’s 1.75x forward Price/Book value is 37.8% lower than the 2.81x industry average. However, YNDX’s C grade for Value reflects its slightly higher valuation compared to its peers. The company has a 5.17x Price/Book value, which is 83.9% higher than the 2.81x industry average.

Of 76 stocks in the China group, BIDU is ranked #7. YNDX is ranked #28 of 70 stocks in the Internet industry.

Beyond what we’ve stated above, our POWR Ratings system has also rated both BIDU and YNDX for Growth, Momentum, Stability and Sentiment.

Get all YNDX ratings here. Also, click here to see the additional POWR Ratings for BIDU.

The Winner

The ability to provide personalized ads and accurate results based on browsing activities of users has enabled search engine companies to attract  rising traffic to their websites over the past year. Because there is intense competition in the market, most companies have been trying to improve their user privacy policies and provide secure and relevant browsing to increase their market share. Taking into consideration their recent developments, both BIDU and YNDX are well-positioned to capitalize on the current industry tailwinds. However, its relatively lower valuations and impressive financials make BIDU a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the China group, and here for those in the Internet industry.

Click here to check out our Software Industry Report for 2021

BIDU shares fell $1.65 (-0.89%) in premarket trading Wednesday. Year-to-date, BIDU has declined -14.45%, versus a 13.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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