China's Baidu tops revenue estimates as company pivots towards short video, mini programs and AI

  • Baidu App saw strong traffic in the quarter although daily active user numbers dropped to 151 million in September from a peak of 161 million in August
  • Baidu said its AI system blocked over 430 million medical ads to combat misleading and low-quality medical ads in the third quarter
PUBLISHED : Wednesday, 31 October, 2018, 8:58am
UPDATED : Wednesday, 31 October, 2018, 1:09pm

Traffic growth on Baidu Inc’s mobile app helped drive higher-than-expected third quarter revenue as China’s biggest search engine operator places more emphasis on artificial intelligence (AI) and autonomous driving.

Revenue rose to 28.2 billion yuan (US$4.11 billion) from 23.49 billion yuan in the same quarter a year ago. That beat the average estimate of 27.53 billion yuan, according to Refinitiv data. Net income rose 56 per cent year-on-year to a better-than-expected 12.4 billion yuan.

Baidu chairman and chief executive Robin Li Yanhong said on Wednesday he expects mini-programs and short video to drive continuous growth despite slowing economic growth in China. He said Baidu was in a “sweet spot” as an internet gateway and that the company is continuing to solidify its position as a ‘super app’ to retain users and improve the customer experience.

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The rosy outlook comes despite a slowdown in the world’s second-largest economy amid an escalating trade war with the US, which may lead to a softening of advertising and marketing, a segment which generated nearly 80 per cent of revenue in the quarter ended September 30. Baidu’s sales momentum has lagged technology peers Alibaba Group Holding and Tencent Holdings, and it has sold or closed several businesses over the past year which were in direct competition.

However, Baidu has become one of China’s biggest AI champions, with its efforts endorsed by the government as well as international firms. This month, it became the first Chinese company to join an AI ethics group alongside members such as Apple and Alphabet’s Google.

“Confidence levels in the private sector are not very high, but the impact is not obvious yet,” said Li in an earnings call. “It’s hard to predict the macro economy next year,” he said, adding that the impact is primarily on traditional sectors and the company remains positive on its long term outlook.

China’s economy is growing at its slowest pace in a decade and is expected to slow further if the trade war with the US continues. On Wednesday, an official survey showed growth in the country’s services industry cooled, as the non-manufacturing Purchasing Managers’ Index (PMI) fell to 53.9 in October from 54.9 a month earlier.

“Feed revenue has been a bright spot in driving Baidu’s revenue growth due to robust user traffic growth, as well as strong traction with Baidu’s video offerings,” Li said.

Having said that, the company’s revenue forecast for the fourth quarter fell short of analysts’ estimates, with sales expected to fall within a range of 25.48 billion yuan to 26.72 billion yuan.

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“The overall competition in online advertising is set to grow fiercer, with emerging players such as Douyin and Jinri Toutiao likely to take a bigger slice,” said Raymond Feng, a senior analyst and co-director of research at Pacific Epoch.

Haokan, a short-video app, is one of Baidu’s efforts to replicate its feed formula in other apps, said Herman Yu, CFO of Baidu. The app had a daily active user base of 12 million in September, and was the fastest-growing app among those with daily active users greater than 5 million over the past three months, the company said in a statement, citing third-party data provider QuestMobile.

Pacific Epoch’s Feng remains to be convinced though. “Baidu is not very good at developing businesses outside search,” he said.

While the company said its Baidu app saw strong traffic in the quarter, its daily active user number dropped to 151 million in September from a peak of 161 million in August. The September number was up 19 per cent year-on-year.

Baidu’s US-listed stock was slightly lower following the results in after-hours trade on Tuesday. The stock is down over 20 per cent since the beginning of the year amid a wider sell-off of Chinese technology shares.