Search giant Baidu beat analyst expectations for its third quarter revenues as the company’s diversification away from its core search business showed signs of paying off.
Why it matters: Baidu has seen increased competition for advertising revenue from rivals including Bytedance and Tencent in the midst of a macroeconomic slowdown that has led advertisers to tighten their belts.
- Baidu has had a tough year—the company’s share price fell by more than 35% prior to its latest earnings release.
- The search giant this year posted its first quarterly loss since listing in 2005.
- Baidu CEO Robin Li warned in January that “winter is coming,” acknowledging the effects of China’s slowing economy and the fallout from the trade war with the US.
- The company has since implemented numerous cost-cutting measures to mitigate risks to its business.
Details: Baidu’s Q3 revenue reached RMB 28.1 billion (around $4 billion), beating analyst expectations of RMB 27.5 billion. Revenue was up 7% compared with the second quarter.
- The company posted a net loss of RMB 6.4 billion. Baidu made a profit of RMB 12.4 billion during the same period last year.
- The company, in part, attributed the losses to its investment in online travel agency Trip.com, whose share price has declined, according to Baidu. In October, Baidu reduced its holdings in Trip.com, selling $1 billion of its shares.
- Q3 revenue from Baidu’s video-streaming platform iQiyi increased 7% compared with the same quarter a year ago, reaching RMB 7.4 billion, boosted by 31% year on year growth in subscribers to nearly 106 million.
- While iQiyi’s subscription revenue increased, the platform’s advertising sales shrunk as a result of increased competition, Herman Yu, Baidu’s chief financial officer, said during the company’s earnings call.
- Meanwhile, online marketing revenue fell by 9% compared with the same period last year as competition and the slowing economy took their toll.
- Baidu expects revenues of between RMB 27.1 and RMB 28.7 billion in the fourth quarter, representing growth of -1% to 7%.
- Baidu’s share price rose 4% in after-hours trading on Wednesday.
Context: Baidu has plowed billions into diversifying its offerings, particularly on artificial intelligence and cloud computing, and is looking to enterprise services for growth.
- Nonetheless, several of these investments, most notably its bet on autonomous driving, have yet to pay off. It’s likely that the company’s focus on self-driving cars will only begin to bear fruit in the next five to 10 years, putting additional pressure on its other businesses.