Search giant Baidu’s second-quarter net income fell more than 60% year on year despite beating revenue expectations, as the company reels from increasing competition and the effects of the US-China trade war.

Why it matters: Baidu reported its first quarterly loss since going public in 2005 during the first three months of the year.

  • Advertisers are tightening their belts as they feel the effects on the ongoing tensions between China and the US.
  • Baidu has seen increased competition from the like of social media and gaming giant Tencent as well as upstart Bytedance, which recently launched a rival search engine.

“Although the increase in ad inventory in the market has impacted the overall growth rate of the company’s services, it’s fair to say that a bigger part of our revenue slowdown can be attributed to self-directed healthcare initiatives and a softening of macroeconomic conditions.”

—Herman Yu, Baidu chief financial officer, said during an earnings call on Tuesday morning

Details: Baidu’s net income dropped to RMB 2.4 billion (around $340 million) in the second quarter from RMB 6.4 billion during the same period last year.

  •  The company’s revenue reached RMB 26.3 billion, up more than 1% from the same time last year. Baidu beat analysts’ revenue estimates of RMB 25.8 billion, according to Bloomberg.
  • The company’s share price rose by 9% in after-hours trading on Monday.
  • Baidu’s ad revenue fell to RMB 19.2 billion, down 9% on the year. Ad sales make up the majority of the company’s total revenue.
  • Traffic acquisition costs increased by more than a quarter compared to the same period last year, which Baidu attributed to an offline expansion to “digitized screens.”
  • The company said its revenue could fall by up to 5% in the third quarter of the year.
  • Baidu’s video streaming platform iQiyi was a large source of growth, with subscribers up 50% year on year.

Context: Baidu share price has fallen by 34% this year, which was accelerated by poor financial results in the first quarter.

  • The company posted losses of RMB 327 million in the first three months of the year.
  • Bytedance and Tencent pose a serious threat to Baidu, as both companies have short-video apps that have become a major drawcard for advertisers.
  • Baidu has faced a series of trust issues after being accused of hosting ads for questionable medical services in its search results.
  • Last month, the company apologized for posting a fake message in which the writer claimed to be the father of a missing girl who was later found dead.

Chris Udemans

Christopher Udemans is TechNode's former Shanghai-based data and graphics reporter. He covered Chinese artificial intelligence, mobility, cleantech, and cybersecurity.

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