Baidu (BIDU  ) shares were down more than 13% following the company's Q3 earnings results which came in above analysts' estimates. Weakness was due to the company warning about slowing ad sales and continued crackdown from regulatory authorities which would depress revenue growth in coming quarters. It also continues the recent streak of poor performance from the company along with many other Chinese stocks and Chinese tech stocks in particular.

Baidu is a fascinating stock because it's one of the early winners of the Internet as the leading search engine in China. However, the company totally missed out on the next generation of technologies and fell behind its peers. But, the company's search business continues to be a cash cow, and it's plowed these proceeds into growth areas like cloud computing, AI, and autonomous, electric vehicles.

Overall, Baidu's stock is down more than 55% from its high in March of this year. It's essentially retraced its entire spike higher from November 2020 to March 2021 when the stock climbed nearly 150% on optimism about the company's EV launch. It remains a popular stock among investors because of its favorable valuation and exposure to growth niches.

Inside the Numbers

In Q3, Baidu reported $2.29 in earnings per share which beat estimates of $2.05 per share. Revenue also slightly edged out estimates at $5 billion vs estimates of $4.9 billion. In last year's Q3, Baidu had revenue of $4.3 billion.

Baidu generated about 65% of its revenue from advertising. This continues to be a smaller share of the company's total revenue mix as cloud computing revenue continues to grow at a faster pace than overall sales. It's also returned to single-digit growth rates after a few quarters of flat or negative growth as advertising moved to social and streaming sites.

Baidu's cloud segment is a bright spot, accounting for 34% of total revenue. This segment is also seeing an acceleration as revenue growth hit 73% in Q3, a slight improvement from 71% last quarter and 41% last year. Currently, Baidu has about 8% of the total cloud market in China and is fourth behind Alibaba (BABA  ), TenCent (TCEHY  ), and Huawei. Cloud spending is expected to be strong in China over the next decade.

Compared to U.S. tech companies, Baidu is very cheap. Given its forecast of about 15% revenue growth next year, Baidu trades at a multiple of just over 3 which is half of that of U.S. companies. However, this is in part due to the regulatory risks and uncertainties that investors face when investing in Chinese companies.