Baidu probe

Baidu shares continue slide in New York amid concerns over Chinese probe into student death linked to online search

PUBLISHED : Wednesday, 04 May, 2016, 10:30am
UPDATED : Thursday, 05 May, 2016, 9:44am

Chinese internet search giant Baidu saw its Nasdaq-listed shares continue to fall on Tuesday as analysts see its corporate reputation and revenue taking a hit this year following a university student’s death linked to a cancer treatment he searched online.

Beijing-based Baidu’s share price went down 2.54 per cent to finish at US$174.36 on Tuesday in New York. That was the stock’s lowest close since March 8, when it reached US$172.81.

Baidu, which has about an 80 per cent share of China’s online search market, is being investigated by a task force set up on Monday by regulators Cyberspace Administration of China, the State Administration for Industry and Commerce and the National Health and Family Planning Commission.

The probe followed the death of 21-year-old Wei Zexi, a computer science student from Shaanxi province, who suffered from a rare form of cancer and sought experimental medical treatment at a hospital in Beijing that topped a Baidu search result.

He chronicled the ineffective treatment he received online, and his death last month prompted a public outcry.

“In the short term, there will be two consequences: a drop in Baidu’s share price and, thanks to the negative media coverage, increased scepticism in the validity and trustworthiness of Baidu’s search results,” said Paul Haswell, a partner at international law firm Pinsent Masons.

“More users in China should become aware that Baidu and other search engines include paid content and advertisements in their search results. Such results should not be automatically trusted.”

Bocom International analyst Ma Yuan forecast in a research note on Wednesday that the fallout from the student’s death could shave between three and five per cent off Baidu’s total revenue this year.

Ma estimated that Baidu’s revenue growth this year to be between 18 and 21 per cent, down from Bocom’s previous prediction of 24 per cent.

Baidu’s total revenue last year rose 35 per cent to 66.38 billion yuan (HK$79.47 billion) from 2014.

Ma, however, pointed out that since the investigation was still ongoing, Bocom maintains a buy rating on Baidu and a target price of US$207.

Shares of companies that are part of the so-called Putian network, Fujian-based businesses that make up some of Baidu’s biggest health-care advertisers, were mixed on Wednesday.

Hong Kong-listed Harmonicare Medical Holding, which operates 12 private hospitals in China, saw its share price rebound from Tuesday’s decline to finish up 1.03 per cent at HK$5.86. Hua Xia Healthcare was down 5.66 per cent to close at 50 HK cents.

Analysts on Tuesday predicted that Baidu could face stiff punishment from the government if found guilty of violating regulations.

“The violation of China’s advertising laws and regulations are subject to penalties, and even the potential termination of advertising operations or removal of a business licence,” Marie Sun, a senior equity analyst at Morningstar, said in a report.