Baidu More Than Doubled Its Profits in the 3rd Quarter

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In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Motley Fool Pro and Options' Jeff Fischer discuss Baidu (NASDAQ: BIDU), which is having a great year.

After the government in Beijing cracked down on the company in 2016 for running paid ads for quack medical treatments, it took a bit of a hit. Now, it's back on track, but there will be some more bumps in the road.

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A full transcript follows the video.

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This video was recorded on Oct. 27, 2017.

Chris Hill: Third-quarter profits for Baidu more than doubled, but shares of the Chinese search engine giant fell more than 7% on Friday after guidance fell short of what investors were hoping for. Even with the drop, Matty, it's been a hell of a year for Baidu.

Matt Argersinger: It absolutely has. I just think, in particular, I look at the 31% increase in the average spend per marketing customer. Again, this was a company that, for the last two years, there's been a shadow on them with some of their customers, the Chinese government got involved. They've cleaned that out. So, even though their advertising ranks are lower, the amount of spend per advertising customer is really impressive. iQiyi, which we talked about, their YouTube-Netflix hybrid, as I'll say because Ron's not here today, firing on all cylinders. 160 million daily active users on mobile. Time spent using iQiyi up almost 30% year over year. And I thought their guidance was actually quite good. If you adjust out some of the businesses, like the delivery business and the mobile games segment that they divested, the core business is going to grow between 28-34% in the fourth quarter. The sell-off, to me, seems a little overdone.

Jeff Fischer: I looked into it as well, and Chris, you're right, the stock is up 46% year-to-date despite the sell-off. That's great. It's up 1,800% since it went public in 2005, which, to me, feels recent. Life-changing returns there with what was known from day one as the Google of China, so it isn't like it was hidden. The problem that I see in the quarter was their talk about their big investment in autonomous cars and AI. AI is their second strategic pillar, and it's going to be a long time before they see artificial intelligence adding anything to profits. In fact, I don't think any company has really cracked how to make a lot of money from AI yet. So, investors lost a little patience hearing that.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill has no position in any of the stocks mentioned. Jeff Fischer owns shares of Alphabet (C shares), Baidu, and Netflix. Matthew Argersinger owns shares of Alphabet (C shares), Baidu, and Netflix. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Baidu, and Netflix. The Motley Fool has a disclosure policy.