Why Did Baidu (BIDU) Stock Drop Today?

Shares of Chinese internet giant Baidu (BIDU ) were down more than 7.5% in early morning trading Friday after the company announced that Lu Qi, who oversaw the firm’s shift to artificial intelligence, is leaving his role as chief operating officer.

Lu is a former Microsoft (MSFT ) employee who joined Baidu in late 2016. He is widely considered a top figure in the global AI industry and is currently responsible for the day-to-day operations of the company’s AI unit.

AI has become Baidu’s primary focus in the past year. The Chinese search engine hired Lu to help with this transition, which came shortly after strict new regulations gutted the company’s ad revenue. The rebound from this scandal has been integral in Baidu’s effort to regain public and investor confidence.

Lu is reportedly stepping down due to “personal and family reasons.” He will remain vice chairman of the company, and current VP Wang Haifeng will take over his AI duties. Lu noted that he would “continue to firmly support Baidu” and will “pay attention to China-U.S. research and investment.”

The AI executive’s departure marks the latest in a series of high-profile exits from the internet firm over the past year. In early 2017, Baidu lost its chief scientist, Andrew Ng, and not long after, the head of its self-driving car unit, Wang Jing, left to launch his own company.

Nevertheless, Baidu shares have started to generate significant momentum over the past month or so as the company’s earnings outlook as improved. Just a few weeks ago, Baidu posted quarterly adjusted earnings of $2.60 per share, crushing the Zacks Consensus Estimate of $1.73.

A large reason for the firm’s better-than-expected profits was its ability to cut down on research and development costs, which had skyrocketed in recent years. Baidu’s upbeat view also led to significant earnings estimate revisions, lifting consensus per-share profit projections for 2018 and 2019 by $1.34 and $1.44, respectively, in the wake of its latest report.

This positive revision activity has earned the stock a Zacks Rank #1 (Strong Buy). Investors are understandably concerned about the departure of a key executive who has been an integral piece of the company’s recent success, but if Baidu can transition to new leadership without any major hiccups, today’s selling might present a discounted buying opportunity.

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