Baidu, China's Google, reports revenue growth for Q1, but misses street estimates

Last Updated: Tue, May 21, 2019 17:27 hrs
People sit in front of the company logo of Baidu at its headquarters in Beijing

China's internet major Baidu, an internet service provider to at least 67% of China's population reported its earnings for the first quarter ending March 31 2019. The company hailed as the Google of China reported a "solid growth" in this quarter.

Total revenues reached RMB 24.1 billion ($3.59 billion), increasing 15% year over year, or 21% year over year excluding the impact of announced divestitures.

The company reported its online marketing revenues at RMB17.7 billion ($2.63 billion), increasing 3% year over year. This was mainly attributed to strength in education, retail, and business services, while healthcare, online games services, and financial services sectors were reported as "less vibrant".

Other revenues were RMB 6.5 billion ($963 million), increasing 73% year over year, which was mainly due to the robust growth in iQIYI membership services, cloud and other businesses. In 2018, Global DU businesses and Du Xiaoman (financial services) were divested, which together generated approximately RMB 1.1 billion in revenues in Q1 2018.

Its Chairman and CEO Robin Li was quoted as saying, “Baidu’s mobile foundation continues to strengthen with search-powered AI, and our new AI businesses are making strong progress. In March, Baidu’s mobile reach expanded to 1.1 billion monthly active devices, while DuerOS voice assistant installed base reached 275 million devices and generated 2.37 billion monthly voice queries.

“Looking ahead, we are quite excited about the opportunities to significantly improve content and service discovery through in-app search and increase customer ROI with our entrance into CRM, to deepen our offering to our marketing customers," he said.

"We are leveraging Baidu AI to provide enterprise solutions to businesses and local governments, which significantly expands our total addressable market,” Li added.

“Baidu Q1 results were solid, with revenues reaching RMB 24.1 billion, up 15% year over year, or 21% year over year, excluding revenue from divested business, and margins were dampened by our successful CCTV New Year Eve Gala marketing campaign, which accelerated the traffic of Baidu family of apps and highlighted better in-app search user experience.” Herman Yu, CFO of Baidu was quoted as saying in filing data.

Among other key highlights, China's Google reported an uptick in spending on research and development. The company spent RMB 4.2 billion ($621 million) on R&D activities. This 26% y-o-y increase has been attributed to an increase in personnel.

But, markets are Unhappy:

Post the results announcement, markets have not taken too kindly. Net loss attributed to shareholders in this quarter has been reported at $49 million. This is the first quarter loss in as many as fourteen years.

The stock slipped on May 17, a day after the results announcement. While sales have risen, EPS has dropped by approximately 75 percent in the first quarter. Baidu attributed the loss in GAAP earnings loss to iQiyi, a business model similar with that of Netflix.

Post the announcement Robin Li reportedly shared a letter to investors explaining a "grim situation" and asked them to "invest in return for growth"

Forecast:

In its filing data to exchange houses, Baidu was reported as saying that it expected revenues in second quarter to be between RMB 25.1 billion ($3.74 billion) and RMB 26.6 billion ($3.96 billion), representing -3% to 2% increase year on year, or a 1% to 6% increase year over year, excluding revenues from announced divestitures.

Herman, Baidu's CFO also said, “Despite government policies to improve the market condition for SMEs, we anticipate online marketing in the near term to face a challenging environment. We will take this opportunity to improve our monetization capabilities and review our businesses for operational efficiency, while recognizing the importance to invest for sustainable long-term growth.”

The company speaking about Apollo, its driver-less concept cars said that it had started testing the fleet in the Hunan province. Open Platform, embraced by a developer community of 15,000, has been adopted for many innovative auto pilot scenarios, including street cleaning, goods delivery and shuttle services.

The company did not give an exact answer of how many miles the Apollo project had covered during tests, but said that it amassed ten times test miles as that of the next industry player in China.