China’s Baidu tops profit, revenue expectations on ad sales growth

BEIJING (Reuters) – Chinese internet search giant Baidu Inc (BIDU.O) surpassed expectations for quarterly profit and revenue on the back of strong growth in its core online advertisement business.

FILE PHOTO: Members of staff work at the Baidu booth during Global Mobile Internet Conference (GMIC) at the National Convention in Beijing, China April 27, 2018. REUTERS/Damir Sagolj/File Photo

Consecutive quarters of strong profits show Baidu has learnt to navigate regulatory potholes in China after previous missteps even as competitors suffer temporary bans and fines for failing to censor content.

Baidu said net income rose 45 percent to 6.4 billion yuan ($940.65 million), or 18.14 yuan per American depositary share (ADS), in the second quarter ended June 30, compared to an estimated 13.4 percent rise by 18 analysts, according to Thomson Reuters I/B/E/S.

Revenue for the online advertising segment rose 25 percent to 21.1 billion Chinese yuan in the quarter, with growth robust for Baidu’s newsfeed product, an app similar to Facebook Inc’s (FB.O) feed. Total revenue rose 24.4 percent to 25.97 billion yuan, topping estimates of a 22.4 percent rise.

Baidu is spending heavily to boost its artificial intelligence (AI) and auto businesses, but its most promising bets in AI and autonomous driving are still at nascent stages meaning margin growth will be constrained for some time, analysts say.

“The company continues to pursue new engines with AI and newsfeed for long term growth. As a result, we believe the margin will not see any expansion in the foreseeable future,” TH Data analyst Tian Hou said in a research note ahead of the earnings.

Despite the better than expected results, Baidu’s second-quarter profit growth rate was slower than the previous four quarters.

Last year’s rapid gains followed several months of stalled growth in 2016 when a Chinese government crackdown on suspect medical ads gutted Baidu’s search ad business.

The firm has since sold off its food delivery business and folded its group buying site Nuomi and other units to focus on artificial intelligence.

The company said it expects third-quarter revenue of 27.37 billion-28.77 billion yuan, representing an increase of 23-30 percent year-over-year, higher than an estimated 18.9 percent rise by 18 analysts, according to Thomson Reuters I/B/E/S.

Reporting by Munsif Vengattil in Bengaluru and Cate Cadell in Beijing; Editing by Arun Koyyur and Muralikumar Anantharaman

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