Baidu & IQiyi Report Q4, China PMIs Higher Than Expected

Key News

Asian equities were mostly higher overnight. Internet and growth stocks rose overnight as Baidu reported positive Q4 2021 earnings that beat estimates. China released manufacturing and non-manufacturing PMIs overnight that beat estimates.

A purchasing manager’s index (PMI) is a diffusion index, meaning that readings above 50 indicate expansion and readings below 50 indicate contraction. All PMIs released overnight came in above estimates as China’s economy appears to be picking up some steam after a consumer slump in the second half of 2021. Meanwhile, the higher-than-expected manufacturing PMI is likely due to steadier than expected demand for China’s exports in February.

Baidu Q4 Earnings Overview

• Revenue +13.1% to RMB 33.1 billion ($5.2 billion)
• Net Income RMB 1.7 billion ($0.2 billion)
• Net Income Margin 5.2%
• Earnings Per Share (EPS) RMB 11.6 ($) versus estimate RMB 9.2 ($)

While Baidu continues to feel the effects from China’s Personal Information Protection Law (PIPL), which are weighing on its advertising business, revenues its non-advertising business, which includes cloud services, and autonomous vehicles, surged +63% year-over-year in the fourth quarter. Managed pages, the search giant’s answer to E-Commerce, have reached nearly 50% of the company’s digital advertising/marketing revenue, benefitting from regulations that forced E-Commerce platforms to scrap exclusivity requirements. These other business segments and Baidu’s answer to E-Commerce are likely to account for more of the company’s revenue as time passes, which is a positive as China’s insatiable demand for cloud computing is unlikely to abate any time soon.

iQiyi Q4 Earnings Overview

• Revenue -0.9% to RMB 7.4 billion ($1.2 billion)
• Net Income RMB -1.5 billion (-$0.2 billion)
• Net Income Margin -19.8%
• Earnings Per Share (EPS) RMB -2.2($) versus estimate RMB -1.8 ($)

iQiyi is an online media entertainment platform that counts Baidu, which also reported overnight, as one of its top investors. iQiyi’s elevated content spending continues to weigh on its bottom line as content costs have reached 75% of revenue and are outpacing sales growth. Nonetheless, the company has a strong foothold overseas and is apt to grow its subscriber count substantially in coming quarters.

The Hang Seng gained +0.21 led by internet stocks as the Hang Seng TECH Index gained +0.74% on volumes that were down -25.09% from yesterday. We would have liked to see higher volumes on an up day, but this will have to do.

Shanghai, Shenzhen, and the STAR Board closed +0.77%, +0.36%, and -0.85%, respectively, overnight on volumes that were +2.53% higher than yesterday.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.31 versus 6.310 yesterday
• CNY/EUR 7.04 versus 7.08 yesterday
• Yield on 1-Day Government Bond 1.73% versus 1.80% yesterday
• Yield on 10-Year Government Bond 2.80% versus 2.78% yesterday
• Yield on 10-Year China Development Bank Bond 3.06% versus 3.04% yesterday