Baidu’s Q4 sales dips as search engine struggles to regain traction

PUBLISHED : Friday, 24 February, 2017, 6:00am
UPDATED : Friday, 24 February, 2017, 4:29pm

Baidu, China’s largest online search operator, reported a second straight quarter of sales decline, as it struggles to regain traction after last year’s public backlash from the death of a medical student linked to an advertising fiasco.

Sales dipped 2.6 per cent to 18.21 billion yuan (US$2.65 billion) in the fourth quarter, better than the 18.17 billion yuan consensus estimate of 16 analysts polled by Bloomberg.

Net profit in the quarter was 4.61 billion yuan, Baidu said. The previous year’s fourth-quarter net income was non-comparable because of a one-off gain when Baidu exchanged Qunar shares with Ctrip, bolstering the 2015 profit to 25.05 billion yuan.

Baidu, the dominant search engine for China’s 731 million internet users, has seen a turbulent year in 2016, after backlash from the May advertising fiasco forced the company to stop selling medical and healthcare-related ads. The company’s stock price plunged 13 per cent last year, wiping US$6.9 billion off its market value.

“We have largely completed our initiative to ensure that new and existing customers meet our stringent quality requirements,” Jennifer Li, chief financial officer of Baidu, said in a conference call following the release of the earning report.

“We believe the most significant revenue impact is largely behind us. Revenue in the fourth quarter resets our revenue base and we look forward to 2017 as a time of gradual recovery and growth. Advertising business is affected by the clean up effort in the short term, but Baidu’s value proposition to our customers remains strong,” she said.

Competition for online advertising is intensifying in China, from two of the country’s largest provider of Internet-related services. Alibaba Group Holdings, which operates the largest online shopping platforms on earth, is increasingly getting revenue from advertisements on its Tmall and taobao platforms. Tencent Holdings, operator of China’s largest mobile social network, is also selling advertising to more than 800 million users of its WeChat service.

Alibaba -- which owns the South China Morning Post -- has already surpassed Baidu in the fourth quarter as China’s largest digital advertiser, with 26.5 per cent market share, according to internet consultancy Analysys in Beijing. Tencent is catching up, holding 11.4 per cent of the market behind Baidu’s 23.3 per cent.

Baidu’s shares fell for the first day in six, dropping 0.7 per cent to US$184.64 in New York trading before its results were announced.

Starting this year, Baidu began to restructuring itself as a company focused on artificial intelligence, expanding its business beyond online search.The company has recently acquired a Beijing tech start-up and set up a dedicated Duer Business Unit to further develop voice-activated human machine interface and is looking to improve its contents products, especially newsfeed products, to expand its adverting customer base.

The company, which had already been developing AI for years, maintains advantages in AI talent and technologies compared with Alibaba and Tencent.

In January, Baidu appointed Lu Qi, a leading AI expert and former Microsoft Corp executive, as its chief operating officer, part of a string of management changes and talent acquisitions to reinforce its efforts in AI.

Baidu focuses on AI as founder Robin Li hires new management team

However, analysts still have concerns over Baidu’s ability to monetise the technology.

“We have been somewhat bearish on Baidu recently and nothing we heard in the conference call today changes that,” said Kirk Boodry, research analyst at New Street Research, which maintains its “neutral” rating on Baidu shares after the earnings report. “Management is very optimistic on the potential for AI and its impact on the industry but this will take some time. It’s certainly not a 2017 event and whilst it has invested heavily, this does not mean it will be the only player when AI-driven businesses gain traction.”

Separately, Taiwanese news site Bowen Press reported on Wednesday that Baidu’s chief executive Robin Li had been banned from travelling outside China. A crackdown on corruption in China, spearheaded by President Xi Jinping , has ensnared a number of high profile executives and sparked media speculation about others. Last month, Chinese billionaire Xiao Jianhua went missing after leaving his hotel in Hong Kong.

Baidu said in a statement yesterday that the report is a complete smear and will take legal actions to protect its interest. Bowen Press was not available for immediate comment.