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Baidu’s startling slump in Hong Kong is deeper than Archegos’ trigger as advertising, EV business face challenges

  • Baidu’s Hong Kong-listed shares have dropped 17 per cent from their IPO price, underperforming Kuaishou and Bilibili among jumbo listings
  • Weak online advertising revenue, a cash-draining self-driving business and foray into EV market are key challenges

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Baidu co-founder and CEO Robin Li attends Baidu Create 2019 in Beijing on July 3, 2019. (Photo by WANG ZHAO / AFP)
The startling slump in Baidu since its secondary listing in Hong Kong is giving analysts a tough time in justifying their bullish buy calls, as the stock trailed market expectations by the widest margin in almost a decade.
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Shares of China’s dominant internet search-engine operator and challenger to Google have declined 17 per cent since they started trading on March 23, the worst among new jumbo listings in the city this year. Its American depositary receipts (ADR) have also lagged behind tech peers on Nasdaq this year.

Its problems lie beyond the margin calls on Archegos Capital Management, whose US$20 billion-odd of investment holdings included Baidu and other Chinese tech stocks. Its underperformance mirrored caution surrounding its increasingly challenging business outlook and looming stock overhang.

Digital advertising business, its main source of revenue, has been shrinking since 2018, losing market share to rivals including social-media juggernauts Tencent Holdings and ByteDance that capitalised on China’s booming mobile-internet sphere.

“Baidu’s main business doesn’t have a high bar and mainly relies on advertising revenue and traffic,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “As a traditional internet company, Baidu doesn’t have much edge on moving into new areas such as artificial intelligence and the crowded EV-manufacturing space. That’s why investors have concerns about the company.”

Baidu’s limping stock is in stark contrast to other billion-dollar stock offerings in Hong Kong this year. Kuaishou Technology, the short-video streaming platform that raised US$6.2 billion, has surged 133 per cent. Bilibili has traded slightly above its IPO level, while Tencent-backed supply-chain financing company Linklogis has appreciated 19 per cent.
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Its ADSs last traded at US$214.40 in New York, compared with analysts’ consensus 12-month price target of US$345.90. The 38.1 per cent price gap is the widest since December 2011, according to Bloomberg data.

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