Baidu Reports Earnings Tomorrow. Here's What to Expect.

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Shares in China's online-search giant Baidu have lost almost 40% of their value since the beginning of the year, as the weakening Chinese economy has dented companies' spending on advertising and dragged on Baidu's revenue.

Baidu (ticker: BIDU) is expected to report its second-quarter earnings on Monday after the market close. Here are a few things to know before the earnings report:

Baidu has been under pressure this year and posted its first net loss last quarter since going public in 2005. Many companies have scaled back their marketing budgets because of weaker growth in the world's second-largest economy. That, in turn, has hurt Baidu's online advertising revenue. Year-over-year growth in quarterly revenue has fallen from above 30% in the second quarter of 2018 to only 9% during the first quarter this year. If only looking at the core online advertising business -- the only segment that's making money -- revenue growth was largely flat for the March quarter. The recently escalated trade war between the U.S. and China could hurt business sentiment even further. The stock has tumbled 39% year to date as of Friday's close. For the three months ended in June, Wall Street is expecting Baidu to see the first year-over-year revenue decline since the fourth quarter of 2016. The consensus sales forecast from analysts polled by FactSet came in at 25.8 billion yuan ($3.7 billion), about 5% less than the same period last year. Analysts believe the company will turn around the loss in the March quarter with about 1.3 billion yuan ($0.2 billion) in net income. Still, they're expecting only 6.18 yuan, or 88 U.S. cents, in earnings per American depositary share, less than one third from the year-ago period. Baidu is investing heavily in new business areas in hopes of triggering its next phase of growth. Baidu is the developer of DuerOS, an Alexa-like operating system that supports natural language processing and voice queries. Its smart-speaker sales now sport a 16% market share world-wide, only slightly behind the 17% of Alphabet 's Google (GOOG) and 27% of Amazon.com (AMZN), according to market analyst firm Canalys. The company is also developing an open-source platform to allow business partners to develop AI applications easily, including in areas like speech recognition, computer vision, and big-data processing. Baidu also released Apollo 5.0 recently, an updated version of its software solution for driverless vehicles. Still, all these initiatives might not contribute much to Baidu's revenue stream any time soon, and investors will continue to see soft earnings in the short run. Baidu shares are now trading at a compressed valuation of 18 times forward earnings, much lower than both the five-year average and peers in the Chinese Internet sector. Most analysts are maintaining a Buy or Hold rating for the stock, with an average price target of $140 per American depositary share over the next 12 months. That's about 45% above current levels.

Baidu's management will hold a conference call to discuss the financial results on Monday at 9:15 p.m. E.T.

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