Search giant Baidu’s shares rally after surprise revenue bump

A Baidu sign is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China, December 4, 2017. (REUTERS)
Updated 21 August 2019

Search giant Baidu’s shares rally after surprise revenue bump

  • Baidu CEO Robin Li warned employees in an internal letter on Tuesday that “severe external challenges and a weak macro environment” necessitated changes to the company’s personnel and business strategy

BEIJING: Chinese Internet search giant Baidu Inc. beat quarterly earnings estimates on Monday after signing more people up to its video streaming service, sending its shares higher in a relief rally.
Baidu reported a small 1 percent bump in revenue and a 62 percent drop in net profit for the second quarter, but the result was welcomed by investors who had feared worse amid a slowing Chinese economy and stiff competition from rivals like ByteDance’s TikTok.
Baidu’s earnings update followed reports from Alibaba and JD.com last week, which also beat expectations, showing how some tech giants’ diversification strategies might be helping stave off macroeconomic pressures.
Baidu’s video streaming service iQiyi was a key driver of the revenue bump as it crossed the 100 million subscriber mark in June, although there were some concerns about rising costs at the unit associated with winning and retaining viewers.
Baidu’s total revenue for the three months to the end of June rose to 26.33 billion yuan ($3.7 billion) from 25.97 billion yuan a year earlier, beating a forecast 25.77 billion yuan, according to IBES data from Refinitiv. The online giant earned 10.11 yuan per American depositary share, compared with expectations of 6.12 yuan per ADS.
“It makes sense that Baidu beats the estimates because analysts have lowered their expectations to the minimum,” said Connie Gu, an analyst at BOCOM International, adding the market would need to see better-than-expected results for several consecutive quarters for more sustained confidence.
Baidu’s Nasdaq-listed shares rose over 9 percent in after-hours trading. The stock has plummeted more than 50 percent over the past year.
But there were some red flags at separately listed Netflix-like iQiyi, where shares tumbled by the same magnitude after a 20 percent jump in costs as the company spent more on content to entice subscribers undercut a 15 percent rise in revenue to 7.11 billion yuan.
Baidu, whose search engine dominates the market in China, has been under pressure as factors such as US-China trade tensions and tougher government regulation weighed on key revenue contributors like advertising.

HIGHLIGHTS

• Analysts say Baidu still faces structural challenges.

• CEO tells staff firm is making changes, prepare for pain.

• Baidu still facing fierce competition in online ad business.

Analysts said Baidu faced a longer-term structural problem, especially with the rise of new media platforms seeking to lure away subscribers.
“Competition from recently rising large-traffic platforms is becoming more and more fierce, with advertisers shifting budget to those platforms,” said Natalie Wu, an analyst at China International Capital Corporation.
While Baidu has been expanding into other business lines such as cloud services and mini-programs within its Baidu App, most of its success so far has been at iQiyi. Revenues at its core search-engine business dipped 2 percent during the quarter, while Baidu’s net income more than halved to 2.4 billion yuan.
Baidu CEO Robin Li warned employees in an internal letter on Tuesday that “severe external challenges and a weak macro environment” necessitated changes to the company’s personnel and business strategy.
“These changes will bring pain in phases, but will also bring positive and far-reaching effects, which will allow Baidu to walk on more steadily and for longer,” Baidu’s chief said in the letter seen by Reuters.
The company said that no job cuts were planned when questioned about the personnel restructure.


IMF warns of Asia’s darkening growth outlook as trade war bites

Updated 18 October 2019

IMF warns of Asia’s darkening growth outlook as trade war bites

  • The IMF cut its economic growth forecast for the Asia-Pacific region to 5.0 percent for this year and 5.1 percent for 2020
  • It also slashed China’s growth forecast to 6.1 percent for this year and 5.8 percent for 2020
WASHINGTON: Asian nations face heightening risks to their economic outlooks as the US-China trade war and slumping Chinese demand hurt the world’s fastest-growing region, the International Monetary Fund said on Friday.
In its World Economic Outlook report on Tuesday, the IMF cut its economic growth forecast for the Asia-Pacific region to 5.0 percent for this year and 5.1 percent for 2020 — the slowest pace of expansion since the global financial crisis more than a decade ago.
“Headwinds from global policy uncertainty and growth deceleration in major trading partners are taking a toll on manufacturing, investment, trade, and growth,” Changyong Rhee, director of the IMF’s Asia and Pacific department, said during a news conference at the IMF and World Bank fall meetings.
“Risks are skewed to the downside,” he said, calling on policymakers in the region to focus on near-term fiscal and monetary policy steps to spur growth.
“The intensification in trade tensions between the US and China could further weigh on confidence and financial markets, thereby weakening trade, investment and growth,” he said.
A faster-than-expected slowdown in China’s economic growth could also generate negative spillovers in the region, as many Asian countries have supply chains closely tied to China, he added.
The IMF slashed China’s growth forecast to 6.1 percent for this year and 5.8 percent for 2020, pointing to the impact from the trade conflict and tighter regulation to address excess debt.