Baidu, Inc. (BIDU) and Alphabet Inc. (GOOGL) are two of the world’s top internet search providers. Chinese search-engine giant BIDU’s business consists of three segments — search services, transaction services and iQiyi. And the world’s top search-engine company GOOGL operates mainly through two segments — Google and Other Bets.
As most businesses have shifted online or at least have an online presence, targeted advertising has become much more important in reaching consumers. As such, both BIDU and GOOGL have been experiencing growing demand.
While BIDU has returned 19.2% over the past five years, GOOGL has gained 139.5%. In terms of past-year performance, BIDU is a clear winner with 52.1% returns versus GOOGL’s 27.2%. But which of these two stocks is a better pick now? Let’s find out.
BIDU is likely to form a new joint venture with Geely to make electric vehicles (EVs), according to a report by Reuters. While BIDU is expected to be the majority shareholder and focus on the software behind the EV, Geely is expected to be the minority holder, with responsibility for manufacturing the EVs. The company released new intelligent vehicle solutions for automakers and several high-end intelligent driving products during the second Apollo Ecosystem Conference, held on December 8.
According to a recent study published by China’s Ministry of Industry and Information Technology (MIIT), BIDU holds the most AI-related patents and has filed the most AI-related patent applications of any company or organization in China. It has been granted 2,682 AI-related patents and, as of October 2020, had filed a total of 9,364 AI-related patent applications.
GOOGL announced on January 5 that it will add App Store privacy labels to its Google applications using the iOS operating system from Apple Inc. (AAPL) by this week or next. The new policy requires developers to disclose how data is collected from App Store users and used to track them. The company is expected to invest in India’s ShareChat along with Snap Inc. (SNAP).
On December 22, GOOGL announced that it is investing in two Indian Startups — Glance and DailyHunt — as a further push into the world’s second-largest internet market. In an expansion of a test-launch where “Shot’ Videos” appeared in the personalized feed of the Google mobile app on some Android devices, Google is testing a new search feature that includes showing videos from Facebook, Inc.’s (FB)Instagram and TikTok.
Recent Financial Results
BIDU’s revenue surged 8.4% sequentially to $4.2 billion for the third quarter ended September 30, 2020. Its subscribers in the iQIYI segment hit 104.8 million in the third quarter, and membership revenue increased 7% year-over-year. Its app’s daily active users reached 206 million, and its monthly active users reached 544 million in the third quarter. Non-GAAP net income increased 59.3% year-over-year to $1 billion, and non-GAAP earnings per ADS increased 61.4% year-over-year to $3.
GOOGL’s revenue for the third quarter ended September 30, 2020 increased 14% year-over-year to $46.2 billion. Its revenue from google search and other segments increased 6.5% year-over-year to $26.3 billion and google cloud revenue increased 44.8% year-over-year to $3.4 billion. Google advertising revenue increased 9.8% year-over-year to $37.1 billion. Net income increased more than 59% year-over-year to $11.3 billion, yielding EPS of $16.4, which increased 62.1% year-over-year.
Past and Expected Financial Performance
BIDU’s revenue and EPS have grown at a CAGR of 9.4% and 10.5%, respectively, over the past three years. Analysts expect the company’s revenue to increase 12.7% for the quarter ended December 31, 2020, 25.3% for the quarter ending March 31,2021, and 15% in 2021. BIDU’s EPS is expected to grow 47.6% for the quarter ending March 31, 2021, and 12.4% in 2021. Moreover, its EPS is expected to grow at a rate of 1.4% per annum over the next five years.
In comparison, GOOGL’s revenue and EPS grew at a CAGR of 18% and 20%, respectively, over the past three years. The market expects GOOGL’s revenue to increase 15.2% for the quarter ended December 31, 2020, 18.1% for the quarter ending March 31, 2021, and 21.2% in 2021. The company’s EPS is expected to grow 38.6% for the quarter ending March 31, 2021, and 18.9% in 2021. Moreover, GOOGL’s EPS is expected to grow at a rate of 16.8% per annum over the next five years.
Thus, GOOGL has an edge over BIDU here.
GOOGL’s trailing-12-month revenue of $171.70 billion is significantly higher than BIDU’s $15.57 billion. Moreover, GOOGL is more profitable with a gross margin of 53.6% versus BIDU’s 46.9%.
Also, GOOGL’s ROE and ROA of 17.5% and 7.7%, respectively, compare favorably with BIDU’s 11.1% and 2.8%.
In terms of forward P/E, GOOGL is currently trading at 34.45x, 57.3% more expensive than BIDU, which is currently trading at 21.90x. Moreover, GOOGL is more expensive both in terms of trailing-12-month P/S (7.07x versus 4.59x), and trailing-12-month EV/S (6.40x versus 3.98x).
In terms of trailing-12-month price/cash flow as well, GOOGL’s 21.20x is 27.9% higher than BIDU’s 16.58x.
Though GOOGL looks much more expensive compared to BIDU, it is worth paying this premium considering GOOGL’s significantly higher earnings growth potential.
While BIDU is rated “Buy” in our proprietary POWR Ratings system, GOOGL is rated “Strong Buy.” Here are how the four components of overall POWR Rating are graded for BIDU and GOOGL:
BIDU has an “A” for Trade Grade, and Peer Grade, a “B” for Buy & Hold Grade, and a “D” Industry Rank. It is currently ranked #15 of 121 stocks in the China industry.
GOOGL holds an “A” for Trade Grade, and Buy & Hold Grade, and a “B” for Peer Grade, and Industry Rank. It is currently ranked #2 of 69 stocks in the Internet industry.
Both BIDU and GOOGL are good investment bets considering their market dominance and consistent innovations. However, GOOGL appears to be a better choice based on the factors discussed here. Even though BIDU dominates in China, GOOGL is the global leader in the internet search provider space.
Want More Great Investing Ideas?
GOOGL shares were trading at $1,783.98 per share on Friday afternoon, up $9.64 (+0.54%). Year-to-date, GOOGL has gained 1.79%, versus a 1.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|GOOGL||Get Rating||Get Rating||Get Rating|
|BIDU||Get Rating||Get Rating||Get Rating|