Baidu Profits Again Fall Sharply
July 28 2016 - 9:40PM
Dow Jones News
Baidu Inc. on Thursday gave downbeat revenue projections for the
current period following a second consecutive sharp drop in
quarterly profit.
The Chinese internet giant—which has had a near monopoly on
China's internet-search traffic since Google Inc. pulled out of the
country in 2010 over censorship concerns—has struggled to catch up
with competitors at the same time that it is facing increased
regulatory pressure.
Chinese authorities have ordered the company to revamp its
advertising practices following the death of a college student who
had cancer and had taken a therapy he found through a sponsored
Baidu link.
Users have long criticized Baidu's search results, saying
sponsored ads weren't clearly labeled and misleading medical
advertising often ranked higher.
While advertising accounts for the bulk of its revenue, Baidu
has been trying to expand beyond search, a bold—and costly—move
that is weighing on results.
In the most recent period, expenses rose 17% to 15.4 billion
yuan while gross profit margin narrowed to 52.2% from 60.8% a year
earlier.
Its video unit, which Baidu had tried to sell to an investing
group led by its chief executive reduced operating margins, on an
adjusted basis, by 5.5 percentage points in the most recent
quarter, Baidu said. Transaction services—which include its
group-buying platform, takeout delivery service and mobile-payment
system—cut adjusted operating margins by 25.4 percentage
points.
Still, the investment drove a closely watched measure of total
transaction value, with transaction services' gross merchandise
value surging to 18 billion yuan ($2.7 billion), up from $2.5
billion in the previous quarter.
Meanwhile, the number of activated Baidu Wallet accounts reached
80 million in the second quarter, up 23% from the previous quarter
and more than double from the year-ago period.
Over all, Baidu reported a profit of 2.40 billion yuan, or 6.57
yuan (99 cents) an American depositary receipt, down from 3.25
billion yuan, or 10.19 yuan an ADR, a year earlier. Excluding
stock-based compensation and other items, profit fell to 8.08 yuan
($1.22) from 11.39 yuan a year earlier.
Revenue rose 10% to 18.26 billion yuan ($2.75 billion), with
revenue from mobile services accounting for 62% of total revenue,
compared with 60% in the previous quarter and 50% in the year-ago
period.
The company cut its revenue projection last month, citing lower
medical advertising as Chinese regulators heighten scrutiny of the
fast-growing medical sector.
For the current quarter, Baidu projects 18.04 billion yuan
($2.71 billion) to 18.58 yuan ($2.8 billion), compared with
analysts' estimate of 19.93 billion yuan, according to Thomson
Reuters.
ADRs, down 12% this year, fell 1% to $163.80 in after-hours
trading.
Write to Maria Armental at maria.armental@wsj.com
(END) Dow Jones Newswires
July 28, 2016 21:25 ET (01:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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