Between the U.S.-China trade war and a decelerating economy, the internet tech giant has been feeling the pressure from multiple angles. As a result, Baidu’s shares are down by about 50.7% from a year ago. Further, Baidu’s valuation is down as well, trading at just 7.90 times past and 15.57 times future earnings.

With these facts and figures in mind, is now a good time to pull the trigger on a Baidu stock investment?

Declining revenue growth

Baidu’s main source of revenue is ads. The company’s ascent to its status as the top search engine in China was fueled by consistently strong revenue growth. For instance, between 2014 and 2018, the company’s total revenues grew by 108%. But Baidu’s revenue growth has been slowing down significantly in 2019. During its last reported quarter — Q2 2019 — Baidu’s top line grew by a meager 1% year over year. Just as significant, its online marketing revenue decreased by 9%.

While these financial metrics were actually up sequentially, they still pale in comparison with growth rates that Baidu investors have gotten used to in recent years. It is also worth noting that this trend might persist. Baidu’s core business will face strong competition from Chinese tech company ByteDance, which recently launched its own search engine. To be clear, Baidu still stands as the market leader in this category in China, but investors should prepare for weaker top-line growth for the foreseeable future. The search engine mogul expects its revenues to increase by no more than 1% (and perhaps to decrease by as much as 5%) during the third quarter.

Exploring other opportunities

Fortunately, Baidu has other avenues it can explore to help produce needed growth. One such opportunity is artificial intelligence (AI). While the AI revolution is still in its early stages, Baidu has the funds to get in on the act and beat most of its competitors in the Chinese market to the punch. The company has been spending a lot of R&D money on Apollo, its open-source autonomous vehicle technology platform, and other such forays into the AI segment. Despite the potential this venture possesses, it will be a while before Baidu can get a return on its investments.

Another opportunity Baidu can look to is iQiyi (which it owns a majority stake in). The online video platform holds a commanding share of the relevant market in China. iQiyi boasted just over 100 million subscribers during the second quarter, and about 99% of them are paying subscribers. That 100-million figure represents a 50% year-over-year increase. iQiyi also posted revenues of a little over $1 billion during the quarter, a 15% jump year over year.

In total, iQiyi accounted for about 27% of Baidu’s revenues during Q2. As Baidu’s core business encounters headwinds, the so-called “Chinese Netflix” could contribute even more to its top line.

Should you buy?

Once the tensions between the U.S. and China ease, Baidu’s core business should show signs of life again. The problem is that no one knows when that will happen, and the company will have to contend with tougher competition from here on out. Also, although iQiyi will likely keep on growing substantially, the streaming company isn’t profitable yet. Finally, Baidu’s AI business may not make a material impact anytime soon.

Those willing to exercise patience may still see Baidu as an attractive option, but the near term looks rocky for the company.

The post Baidu’s Stock Is on Sale. Should You Buy? appeared first on The Motley Fool Canada.

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While security concerns remain an issue for the Silicon Valley tech company, they have now taken a back seat to a more recent — and potentially more damaging — probe into its business activities. Government regulators launched an antitrust review of the tech giants that garner and control much of online traffic and communication. Naturally, the possibility that Facebook could face tougher antitrust treatment isn’t good news, but what should Facebook’s shareholders and potential investors think of this?

The reasons behind the antitrust probe

In late July, the Department of Justice formally announced a review of the business activities of “market-leading online platforms” in a press release. The goal is to investigate “whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers.” Although Facebook was not explicitly named in the press release, there was never any doubt that the social media giant was one of the companies at the center of this controversy.

Whether Facebook is indeed guilty as charged is for someone else to decide, but it is worth noting that this complaint isn’t just smoke and mirrors. After all, Facebook owns Instagram, one of the largest social media platforms in the world, which it acquired back in 2012. The tech company also acquired WhatsApp in 2014, a messaging app that boasts millions of users worldwide. This market would certainly look different — and a bit more competitive — had these acquisitions never happened. Facebook even tried to acquire Snapchat in a move that would have reduced competition even more.

Potential outcomes

No one knows with certainty what will come of this antitrust review, but there are several possibilities. First, Facebook and its tech peers might have to pay huge fines. Back in July, the company was fined a whopping $5 billion — the largest fine ever imposed on any company for violating privacy rights — as part of a settlement with the FTC. It also had to adopt new privacy measures to protect users’ information from another data breach.

Another possibility available to lawmakers is to break up these tech giants. At least one presidential candidate, Elizabeth Warren, has vowed to pursue this course of action if elected. However, this seems somewhat unlikely. Attempting to blow up Facebook and create two or more smaller companies from its ashes would involve a long and arduous battle in court.

What does this mean for investors?

Market competition aside, Facebook’s troubles over the past year or so haven’t had as big an impact as some might have anticipated. Sure, we’ve seen the occasional drop in the company’s share price, a rise in social media campaigns against its platform, and a decline in consumer trust toward the business. Nevertheless, Facebook has recovered from all these woes relatively well. Year to date, the company’s shares are up by over 30%. During the second quarter, the company’s daily and monthly active users were both up by 8% year over year.

Even the $5 billion fine Facebook had to pay only represents about one quarter of its annual earnings. In short, Facebook seems to be largely unscathed, at least for now. One possible explanation for this apparent paradox is as follows: Facebook has become such an integral part of modern communication that a significant number of people are comfortable with the security risks it occasionally poses. And while the antitrust review presents a different kind of obstacle, nothing material has come of it just yet, and it doesn’t seem like a verdict is forthcoming.

Things could certainly get rough for Facebook, and investors should keep paying close attention to how this probe develops. In particular, it will be interesting to watch as Facebook releases its earnings report toward the end of the month. But at the moment, the social media company seems to be A-OK.

The post What the “Tech Probe” Means for Facebook’s Shareholders appeared first on The Motley Fool Canada.

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