China internet search giant Baidu surprises with third quarter net profit

PUBLISHED : Friday, 28 October, 2016, 6:33am
UPDATED : Friday, 28 October, 2016, 7:03pm

Chinese internet search giant Baidu reported better-than-expected profit in the quarter ended September 30, despite continued weakness in its online advertising business and its first revenue decline.

“We saw further improvements in customer quality in the third quarter as we continued to implement stricter standards for online marketers,” Baidu chairman and chief executive Robin Li Yanhong said in a statement on Friday.

Li, however, warned that the worst is not over for the company. 

"We expect the most pronounced impact on our business in the fourth quarter, followed by recovery early next year," he said.

Nasdaq-listed Baidu’s shares were up 1.35 per cent to US$175.16 at the close of trading on Thursday in the United States.

The company posted a 9.2 per cent increase in third-quarter net profit to 3.102 billion yuan (HK$3.552 billion), up from 2.841 billion yuan in the same period last year, mainly on lower selling, general and administrative expenses.

Its profit was 40.6 per cent higher than the market analysts’ consensus estimate of 2.207 billion yuan.

Revenue decreased 0.7 per cent to 18.253 billion yuan from 18.383 billion yuan a year earlier.

Sales were largely in line with the consensus estimate of 18.317 billion yuan, and came in at the midpoint of Baidu’s guidance in July of revenue ranging from 18.04 billion yuan to 18.58 billion yuan, according to Jefferies equity analyst Karen Chan.

China’s Baidu to report third straight fall in quarterly profit as search advertising stays soft

Baidu has been significantly affected by Chinese regulators’ efforts to put more stringent controls on medical-related search advertising since May, following public outrage over the death of university student Wei Zexi linked to a cancer treatment he found in an online search result.

Online marketing revenue in the third quarter declined 6.7 per cent year on year to 16.490 billion yuan.

Beijing-based Baidu had about 524,000 active online marketing customers during the period, representing a 15.9 per cent year on year decrease.

Average monthly revenue per online marketing customer for the third quarter was 31,300 yuan, a 10.6 per cent year on year increase.

Baidu expected to generate total revenue ranging from 17.840 billion yuan to 18.380 billion yuan in the fourth quarter.

“Its core search remains weak,” Chan said. “The mid-point of guidance is 4.6 per cent below our current estimates of 19 billion yuan, and 7.3 per cent below current consensus estimates of 19.5 billion yuan for the fourth quarter.”

In July, Li said Baidu management expected it to take another two to three quarters before the company’s search business recovers.

Baidu chief financial officer Jennifer Li Xinzhe said the company was going through a transition period, with much of the work related to validating its customer base with the required documentations based on the new online advertising regulations that took effect on September 1.

"In the fourth quarter, we're targeting to finish all the verification process with all our customers," Li said.