Baidu Q2 Earnings Preview

Will the world's second-largest search engine impress on earnings, or has its ‘quantum computing’ announcement overshadowed the release?
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Quantum vs Zero Covid

Baidu's shares rocketed higher yesterday after announcing a breakthrough in quantum computing, allowing for the potential industrial application of this cutting-edge tech. Of course, the actual application remains quite a bit in the future, but the potential is enough to entice investors. Particularly in the tech space, which has been in dire need of good news.

However, since Baidu isn't going to see any major revenue from the announcement any time soon, it is still a speculative bet. And with interest rates rising, investors aren't so much in the mood for speculation. Hence, the focus for the earnings release is likely going to be more on whether the largest search engine in China was impacted (or benefited) by the rolling lockdowns over the spring quarter.

China NYSE Listings

Another bit of potentially welcome news yesterday was that reportedly the US and China have reached a deal that would allow auditing of Chinese firms listed on the NYSE. Confirmation of the arrangement could substantially improve Baidu's prospects. But, it's too early for that to be included in the commentary of the earnings report.

Expectations

Baidu is expected to report another sequential drop in earnings, for an EPS of $10.52 per share. That is on lower sales of $29.4B, but perhaps crucially, an improvement over the first quarter which showed the first impact of the covid lockdowns.

Where investors might be focused is on the EBITDA margin, after the firm announced it was taking measures to cut costs. So, the idea is to see if they had any impact, or if further cost-cutting measures get announced.

Baidu soars above key SMAs

The share price of Baidu pumped above both the 50 and 200-day averages on Thursday but remains comfortably below resistance at $160. Only weeks ago, Baidu was hovering above $100. The crossover paints a bullish picture towards $170 and beyond.

The jump above the $141-$142 SMA zone left a gap behind, which might be filled sooner or later. In the event bears capture $150 a reversal might come sooner. $127 and $120 become near-term supports.

KEY TAKEAWAYS

Baidu announced a breakthrough in quantum computing that could lead to industrial application a few years from now. Investors remain cautious about the company due to rising interest rates but are hopeful the spring quarter lockdowns won’t be as bad.

The company's earnings are expected to be lower than in the first quarter, with a continued focus on cost-cutting measures. So, investors will be interested to see if the firm makes further announcements.