Bottom line: Baidu’s first-ever loss since going public reflects a long-anticipated ripen for its cadre search business, which could mark the start of a longer-term ripen due to lack of a strong new merchantry lines.
It seems that profits are increasingly nonflexible to come by these days on China’s Internet. That’s the major takeaway coming in the latest results from search giant Baidu (Nasdaq: BIDU), which has just posted its first loss since rhadamanthine a publicly listed visitor 14 years ago. Perhaps most worrisome, the biggest issue appears to lie in Baidu’s cadre search business, unchangingly a mazuma cow in the past, whose operating profits tumbled in the first three months of the year.
The surprise loss is one of the first-ever that I can recall for China’s three largest Internet companies or the BAT, namely Baidu, Alibaba (NYSE: BABA) and Tencent (HKEx: 700). That’s led many to wonder whether Baidu’s glory days are fast fading into the rear-view mirror, or whether perhaps this visitor has flipside trick pony vastitude its search merchantry that has sustained it for years.
I would probably fall into the zany that says this is a visitor on the cusp of a prolonged sunset, and that this particular quarterly loss perhaps could go lanugo as a watershed in its history. Increasingly on that shortly.
First let’s start with the somewhat shocker headline that saw Baidu post its first loss since going public in 2005. That loss totaled 327 million yuan ($47 million), to be precise. But people were unmistakably focused on the very fact that such a profitable visitor in the past could post a loss at all. Shareholders fled Baidu in droves without the report came out, causing the stock to slump by increasingly than 16 percent.
The sell-off brought Baidu’s market cap lanugo to a very unobtrusive $45 billion, only well-nigh $2 billion superiority of No. 2 e-commerce player (Nasdaq: JD), which has been nipping at Baidu’s heels for quite sometime as the pair jockey for title as China third largest internet company. JD is moreover a loss-making colossus, though investors are moreover starting to get impatient with that visitor as well. But that’s a subject for flipside day.
For now let’s return to Baidu and delve a little increasingly tightly into its numbers. In this specimen it’s really all well-nigh Baidu’s cadre search business, referred to as Baidu Cadre on the company’s results announcement. Revenue at Baidu Core, which finance for nearly three-quarters of Baidu’s total, grew at an weak 8 percent in the first quarter to 17.5 billion yuan — not exactly anything to write home about. But far increasingly viperous was a huge waif in Baidu Core’s operating profit, which crashed by 81 percent.
Growing Competition
Analysts were all abuzz well-nigh what led to that huge waif in profit for the company’s inside search business. The verdict seems to be that the ad market in China is getting much increasingly competitive these days as companies vie for a stagnating or plane dwindling pool of razzmatazz dollars. That wouldn’t be too surprising since signs coming from China’s economy have pointed to such a slowing for at least the last two years.
What’s more, Baidu itself is whimsically the razzmatazz dollar magnet it used to be. The visitor has been undefeatable by a number of scandals over the last few years related to misleading search results that promote paid advertisers without promoting that fact. It moreover came under fire older this year from a respected former journalist who said Baidu has powerfully wilt a search engine that specializes in finding results for its own content.
When it looked like global search giant Google (Nasdaq: GOOG) might be coming when to China last year, many welcomed that move due to feelings that Baidu had wilt fat, lazy and somewhat untruthful over the last decade in the sparsity of a serious rival. Baidu itself realized it couldn’t rely on search forever, and founder Robin Li has been pushing heavily lately into strained intelligence (AI) to try and diversify in vaticination of that day.
It’s nonflexible to say at the moment if the AI efforts are validness much fruit yet. Most of those efforts are focused in self-driving cars, an zone China wants to develop but one that hasn’t gone too far yet in terms of putting real cars on the road. Flipside promising zone for Baidu is online video in the form of its up-and-coming iQiyi (Nasdaq: IQ) unit. But iQiyi is still losing large money, and it’s not too well-spoken if there’s a good long-term profit model in there.
At the end of the day, I’m not convinced that AI is going to help Baidu unendingly soon. Neither will online video. And these latest results show that the cadre search merchantry may be headed south as well. With all those negative signs on the dashboard, it’s nonflexible to get excited well-nigh this company, and one could plane start to wonder if Baidu has what it takes to survive over the longer term future.