Baidu cuts Q2 revenue forecast 10% in face of medical regulatory changes

Chief executive Robin Li Yanhong says range now 18.1-18.2 billion yuan, compared with earlier 20.1-20.58 billion estimate

PUBLISHED : Tuesday, 14 June, 2016, 8:03pm
UPDATED : Tuesday, 14 June, 2016, 8:04pm

Online search giant Baidu has reduced its second quarter revenue forecast by more than 10 per cent after half of its medical customers altered their advertising spending, amid ongoing regulatory uncertainties.

The Nasdaq-listed company now expects Q2 revenue to be 18.1 billion yuan (HK$21.3 billion) to 18.2 billion yuan, compared with an earlier estimated range of 20.1 billion to 20.58 billion.

“The revision...mainly reflects the short-term uncertainty surrounding the scope, timing and roll out of regulatory review of medical organisations ,” said chief executive Robin Li Yanhong during a conference call with analysts on Tuesday.

“Over half of our medical customers have temporarily reduced or delayed spend on our platform.”

The State Administration for Industry and Commerce launched a six-month crackdown on false online advertisement in May, after the death of 21-year-old Chinese cancer patient Wei Zexi, who had sought out a controversial treatment advertised among search results offered on Baidu.

“Over half of our medical customers have temporarily reduced or delayed spend on our platform.”
Baidu chief executive Robin Li Yanhong

Li’s firm controls more than 80 per cent share of China’s online search market, but it was ordered by the government to take stricter measures to limit fake online adverts, including limiting the share per page to less than 30 per cent.

Baidu said last month it had taken more than 2,500 medical organisations off its platforms and removed more than 126 million adverts.

“We must never lose focus on prioritising the user experience even if revenue is sacrificed over the short term,” said Li, who added he remains confident customers will resume spending when the regulatory issues are settled.

Online advertising is Baidu’s main cash cow, according to Xue Yu, an analyst with research firm IDC.

“It means Baidu’s business will be negatively affected for a long time,” Xue said, pointing out the company currently lacks another large source of income, as its online to offline businesses such as ticketing and group buying remain highly capital intensive.

Its so-called “moonshot” projects, such as artificial intelligence and big data technology, are also far from being commercialised.

Smaller Chinese search engines, meanwhile, are grabbing the opportunity to steal a share of the search market dominated by Baidu.

Sogou, an online search service backed by internet giant Tencent Holdings, launched a dedicated search engine for medical information last month.

Xue said although other sites are not large enough to seriously compete with Baidu in the general search market, they may beat it in smaller search segments, such as medical.