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Why Baidu Jumped Nearly 26% in July

What happened

Baidu'(NASDAQ: BIDU) stock price jumped 25.7% in July, according to data provided by S&P Global Market Intelligence, and more than half of that gain took place after company reported solid revenue growth and skyrocketing earnings for its second quarter.

So what

Baidu increased its revenue by more than 14% in Q2, to $3.08 billion. Net income, however, increased by a whopping 98.4% to $822 million, and adjusted earnings per share (EPS) jumped by just as much to $2.36. That far exceeded analysts' consensus earnings estimate of just $1.41 EPS for the quarter. Those results sent sentiment about the Chinese search giant skyrocketing, and investors pushed Baidu's share price up 14% in the days that followed the July 27 earnings report. 

Image source: Baidu.

 

Now what

Baidu expects to deliver even more growth in the third quarter and has forecast that revenue will come in between $3.4 billion to $3.5 billion, which would be a a 27% to 30% year-over-year increase. 

Baidu expects revenue to keep growing as the company continues to rebuild  its base of online marketing customers, which declined 21% year over year in the quarter. Much of that drop was due to the company ending its relationship with low-quality advertisers, particularly those that had made misleading healthcare claims on Baidu's ad platform. Chinese regulators cracked down on the company over such ads in May, and also imposed limits on how it places paid-search results more broadly.

Baidu CFO Xinzhe Li, said on the earnings call that the company is bringing in new, more lucrative customers that will increase average revenue per user (ARPU) in the current quarter:

And so we do see last year toward year-end, we implemented stricter rules to have higher standards for our customers to qualify to do business with us. And after that exercise, we're building our customer base again. And so we do anticipate our customers base should grow. And because of the rich product portfolio that we offer, we aim to grow our ARPU as well. 

Based on the company's recent earnings and revenue growth -- and its assertion that more is on the way -- it appears Baidu may be slowly building back its business after last year's problems. That should help give investors renewed hope that the company is already back on track.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Baidu. The Motley Fool has a disclosure policy.