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By Alyssa Abkowitz in Beijing and Maria Armental in New York
Chinese search giant Baidu Inc. is clawing its way back from a challenging year on the strength of advertising and its move to pare down its noncore businesses.
The Beijing-based company on Tuesday reported revenue of 23.6 billion yuan ($3.7 billion) for the three months ended Dec. 31, up 29% from the year-earlier period. Net income rose to 4.2 billion yuan, up 1% year over year.
Sales and profit both topped expectations, sending Baidu's American depositary receipts up 5% to $237.03 in after-hours New York trading.
Analysts said the strong results showed Baidu's progress on two fronts--providing a steady stream of revenue while it transitions to new businesses such as self-driving cars, and moving past a 2016 medical-advertising scandal that forced it to curtail advertising for health care.
The company also sold its cash-burning food-delivery business in August, which helped lower marketing expenses during the fourth quarter.
Baidu derives most of its sales from its search-related advertising, and the company is also seeing growth in revenue for its customized Newsfeed, which provides video and news clips. Chief Financial Officer Herman Yu said on an earnings conference call that Newsfeed revenue has been growing about 20%, and should continue that pace this year.
Newsfeed launched in 2016 and goes up against better-established competitors, including Tencent Holding Ltd.'s Tencent News and newsfeed app Jinri Toutiao.
"It looks like Baidu is becoming quite successful as a late entrant into the business," said Raymond Feng, an analyst at Pacific Epoch consultancy firm. "Toutiao used to be very significant, but it appears Baidu's large platform and big traffic have attracted advertisers to really think about this platform."
Baidu also announced that it has filed preliminary paperwork for its iQiyi video-streaming service to debut on a U.S. stock exchange, which would help the unit raise money as it pushes to stay ahead in the fiercely competitive sector.
The company said its content costs overall rose 46% in the quarter from a year ago, to 3.75 billion yuan, with most of that increase coming from iQiyi. Baidu said it expects to remain the controlling shareholder after the IPO.
The long-awaited announcement follows iQiyi's $1.53 billion fundraising last year, which included a $300 million investment from Baidu. The investment came months after investors balked at a $2.3 billion buyout bid from a group led by Chief Executive Robin Li, saying the proposal undervalued the unit.
While Baidu is still dependent on search-related advertising, like Alphabet Inc.'s Google, the company is betting its long-term future on businesses powered by artificial intelligence, including self-driving cars, home speakers, TVs and storytelling toys.
Baidu said it would commercialize autonomous driving by selling services, beginning with high-definition mapping. The company also plans to sell autonomous-driving computing units that can be plugged into cars to run its software, analysts said. Baidu has pledged to deliver a self-driving bus by the end of the year and fully autonomous cars by 2021.
For the current quarter, Baidu expects 19.86 billion yuan to 20.97 billion yuan in revenue, compared with analysts' estimates of 21.18 billion yuan.
Write to Alyssa Abkowitz at firstname.lastname@example.org and Maria Armental at email@example.com
(END) Dow Jones Newswires
February 14, 2018 01:59 ET (06:59 GMT)
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