Online Marketing

Baidu Stock Soars On Strong Earnings Results – Barron's

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Photograph by Greg Baker/AFP/Getty Images

China’s online-search giant
Baidu

(ticker: BIDU) reported better-than-expected earnings for its second quarter ended in June, sending shares 9% higher in after-hours trading Monday.

Baidu’s stock was already up 7.8% to $104.22 during Monday’s trading session—before the company’s earnings news—after fellow online advertisers
Sina

(SINA) and
Weibo

(WB) posted positive figures and relieved some worry around China’s softening demand.

The back story. Baidu shares were down almost 40% this year through Friday’s close. The weakening Chinese economy has dented companies’ spending on advertising and weighed on Baidu’s revenue as a result.

The company had posted its first net loss last quarter since going public in 2005 and said it had expected virtually no revenue growth for the second quarter ended in June.

For its core online advertising business—the only segment that’s making money—revenue growth was largely flat for the March quarter.

What’s new. On Monday after the market close, Baidu reported total revenue of 26.3 billion yuan ($3.84 billion) for the June quarter. That’s up 1% up from the same period last year and higher than Wall Street’s consensus estimate of 25.8 billion yuan. Baidu divested businesses worth about one billion yuan in the June quarter last year. Excluding the impact of the divestitures, revenue in the second quarter grew 6% year over year.

The company’s online marketing revenue dropped 9% from the year-ago period amid the softening Chinese economy and the increasingly competitive landscape among Chinese online media platforms that battle for a bigger share of advertisers’ budgets. Other long-term initiatives, on the other hand, grew sales by 44%, driven mainly by robust growth in the membership of its video-streaming service, the cloud, and on smart devices.

After posting a net loss in the previous quarter, Baidu reported non-GAAP net income of 3.6 billion yuan ($529 million), or $1.47 in earnings per American depositary share. That also topped analysts expectations of 88 cents per share, but still came in less than half the number from a year ago.

Daily active users on the Baidu mobile app grew 27% year over year to reach 188 million in the June quarter. “Our focus on strengthening Baidu’s mobile ecosystem through knowledge-based content, BJH accounts, smart mini programs, and managed pages on Baidu’s platform is translating into better user experience, stronger traffic growth, and, we believe, ultimately higher conversion for our customers,” co-founder and CEO Robin Li said in the company’s press release.

Looking Ahead. For the third quarter of 2019, Baidu management expects revenue to be between 26.9 billion yuan and 28.5 billion yuan. Excluding the impact of last year’s divestitures, the range represents a decline of 1% to an increase of 5% compared with the year-ago period. Analysts polled by FactSet are looking for 28.1 billion yuan on average.

Baidu has been pouring cash into new business areas in hopes of triggering its next phase of growth, including an Alexa-like smart speaker that supports natural language processing and voice queries, as well as open-source platforms for artificial intelligence applications and autonomous driving systems.

“As mobile internet penetration in China slows, we are excited about the huge opportunity to provide content and service providers a cross-platform distribution channel beyond mobile, into smart homes and automobiles,” Li said in the statement.

But the initiatives won’t contribute significantly to Baidu’s revenue stream any time soon. Baidu’s online advertising continues to be the key segment to watch in the near term.

Write to Evie Liu at evie.liu@barrons.com

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