Some companies in China are going to have to deal with challenges of a trade war, tariffs, government oversight and other issues that might weigh on earnings. But what about the so-called Google of China in that mix? Baidu Inc. (NASDAQ: BIDU) was getting destroyed in its earnings reaction. The reason is simple: the Chinese search engine giant posted its first quarterly loss since 2005.
Its quarterly revenue was $3.59 billion, and it generated a net loss attributable to shareholders of $47.5 million. Baidu’s revenue from online marketing services rose by about 3% to $2.57 billion (17.66 billion RMB), about $100 million short of expectations.
Baidu also gave guidance for second-quarter revenues to be in a range of 25.1 billion to 26.6 billion RMB ($3.74 billion to $3.96 billion). Analysts were calling for more than 29 billion RMB ahead. This represents a range of −3% to 2% year over year, or 1% to 6% increase year over year when excluding revenues from announced divestitures.
Baidu attempted to soften the blow by also announcing a $1 billion share buyback plan, but that failed as leadership changes were also announced. Hailong Xiang, senior vice president of the search business, has tendered his resignation after 14 years of service at Baidu. Dou Shen was promoted to be senior vice president, overseeing Baidu’s mobile business, which was previously known as the search business, and he has been with Baidu since 2012.
Baidu Chief Financial Officer Herman Yu warned of the difficulties in the current online marketing environment:
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.
With the ongoing “Google of China” reference, Baidu also has become much more difficult to analyze. now that it has moved away from just being considered the leader of search in China. Baidu App daily active users rose 28% from a year ago to reach 174 million, and its Haokan daily active users in March 2019 rose by 768% from a year ago and 16% sequentially to 22 million. Baidu has a feed-content network with 2.1 million publishers, a 1.5 million out-of-home digital screen network in 362 cities across 31 provinces, a DuerOS voice assistant installed base of 275 million users, smart devices and is also into artificial intelligence, autonomous vehicles and robotaxis. And what was included here barely scratches the surface. As companies become more and more complex, they also become nearly impossible to predict on a systemwide basis.
Baidu’s American depositary shares were up 0.8% at $153.70 ahead of earnings, but the shares were last seen trading down 11.2% at $136.45, under its 52-week range of $150.02 to $274.00. The prior consensus target price was $210.02, and Baidu closed with a $53.7 billion market cap.