Baidu (BIDU 0.62%) likely minted a few millionaires after its public debut in 2005. If you had invested $10,000 in the Chinese tech giant's IPO, your investment would have briefly blossomed to $1.26 million when it hit its all-time high on Feb. 19, 2021. But today that 2005 investment would only be worth $389,000.
Baidu's stock stumbled as it faced fierce competition from other search platforms, the broader Chinese economy sputtered out, and delisting threats cast dark clouds over U.S.-listed Chinese stocks. However, it's still the largest search engine in China, it's expanding its AI and cloud platforms, and it's only worth $37 billion.
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So could Baidu keep growing over the next two decades and turn a fresh $10,000 investment into more than $1 million? Let's review its long-term opportunities to find out.
What happened to Baidu over the past two decades?
From 2005 to 2015, Baidu's annual revenue grew at a stunning compound annual growth rate (CAGR) of 74%. That growth was driven by three tailwinds: China's rapid economic expansion, rising internet penetration rates, and the abrupt departure of Alphabet's Google from mainland China in 2010.
But from 2015 to 2020, Baidu's revenue only rose at a CAGR of 10%. Its growth slowed down as Tencent's (TCEHY 2.19%) Weixin (known as WeChat overseas), ByteDance's Douyin (known as TikTok overseas), Alibaba's (BABA 0.59%) e-commerce marketplaces, and other mobile apps replaced it as a starting point for online searches.
At the same time, China's economic growth cooled off and advertisers reined in their spending. The COVID-19 pandemic exacerbated that pressure and China's post-pandemic recovery was hampered by unpredictable "zero-COVID-19" lockdowns.
Baidu's revenue rose 19% in USD terms in 2021 as some of those headwinds passed, but declined 8% in 2022 as the messy macro environment throttled its growth. In 2023 its revenue rose 6% as its core online marketing business (which accounted for 56% of its top line) stabilized and its cloud business expanded. The popularity of its Managed Business Pages (which empower Baidu to handle a brand's entire presence across its ecosystem) offset the slower growth of its traditional search and display ads, while the growth of its AI services supported the expansion of its cloud infrastructure platform.
What's next for Baidu?
Looking ahead, the company expects the growth of its Baidu AI Cloud platform -- which is still an underdog compared to Alibaba, Huawei, and Tencent in the cloud race -- to continue expanding and reduce its dependence on digital ads. It continues to expand its namesake mobile app, which served 667 monthly active users (MAUs) at the end of 2023, as a "super app" with more integrated services to counter Tencent's Weixin.
On the AI front, Baidu has been expanding its ERNIE large language model to support new generative AI features across its ecosystem. It's also rolling out new driverless vehicle and robotaxi services to extend its reach beyond PCs and phones.
Those strategies are sound, but its high-growth days are probably over. Baidu still controls 60% of China's search market, according to StatCounter, but that space is maturing and evolving. China's days of high economic growth are also (potentially) over.
From 2023 to 2025, analysts expect Baidu's revenue to grow at a CAGR of just 8% as its EPS rises at a CAGR of 12%. We should take those estimates with a grain of salt, but they imply it's becoming a mature tech stock instead of a growth play.
How much could Baidu be worth in two decades?
Baidu's stock looks cheap right now at 12 times forward earnings, but it could struggle to command a higher valuation as its growth cools off. If Baidu maintains that forward multiple, the foreign exchange rates hold steady, and it grows its earnings per ADS at a stable CAGR of 10% from 2023 to 2043, its stock could be trading at about $650 in two decades.
That gain would turn a $10,000 investment today into nearly $62,000 -- but it would fall woefully short of replicating its past millionaire-making gains. Simply put, Baidu might still be a slow and steady play on the gradual growth of China's economy, but growth-oriented investors should probably check out its higher-growth industry peers instead.
