Home / us / Baidu posts its first loss since the IPO – and things can get worse

Baidu posts its first loss since the IPO – and things can get worse



<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Baidu& # 39; s (NASDAQ: BIDU) the stock tumbles to a multi-year low after the Chinese technology giant has posted it profit for the first quarter late on Thursday. "data reactid =" 11 ">Baidu& # 39; s (NASDAQ: BIDU) the shares fall to a multi-year low after the Chinese technology giant announced the earnings for the first quarter late on Thursday.

On the positive side, sales increased 15% year-on-year to RMB 24.1 billion ($ 3.6 billion), which is in line with expectations. Excluding the impact of the announced divestments, revenue grew by 21%.

However, Baidu saw red ink for the first time since the IPO in 2005, with a net loss of 327 million renminbi ($ 49 million), compared to a profit of 6.7 billion RMB a year earlier. Adjusted income – excluding divestments, acquisitions and other costs – decreased 80% to RMB 967 million ($ 144 million), or $ 0.41 per American Depository Share (ADS), with estimates of $ 0.16 missing.

For the second quarter, Baidu expects its revenues to remain stable on an annual basis on a reported basis and to increase by only 1% -6% after excluding the upcoming divestments. This growth is shockingly weak compared to double-digit sales growth in the past two years. Baidu's share deserved to move after that report and things could get uglier before they get better.

A professionally dressed man looking at a share card descends from a cliff.

Image source: Getty Images.

View the key numbers

Baidu's online marketing revenue increased by 3% annually and represented 73% of sales. That was a huge slowdown in growth in previous quarters.

Growth (YOY)

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Online marketing revenues

23%

25%

18%

10%

3%

YOY = year after year. Data source: Baidu quarterly reports.

Baidu stated that the strong demand for advertising in the education, retail and business services markets did not meet the "less vibrant" demand from the healthcare, online gaming and financial sectors. Baidu also stopped announcing its growth in active online customers, and Hailong Xiang, the senior VP of his search unit, abruptly resigned.

In the meantime, the TAC (traffic acquisition costs) increased by 41% per year and represented 13% of total revenue and 18% of marketing revenue. Those percentages were in line with the previous quarters and indicate that Baidu does not spend too much money to lock advertisers.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "For comparison, AlphabetGoogle spent 22% of its advertising revenue on & nbsp; TAC, while the smaller rival of Baidu & nbsp;Sogou, earned no less than 57% of its revenue in the last quarter from TAC. "data-reactid =" 43 "> For comparison, AlphabetGoogle spent 22% of its advertising revenue on TAC last quarter, while Baidu & # 39; s smaller rival, Sogou, spent no less than 57% of its sales on TAC in the last quarter.

However, the total operating costs of Baidu still increased annually by 53% and the non-GAAP operating margin decreased from 26% to 2%. This cost peak was caused by his continued investments in his virtual assistant DuerOS, his short video app Haokan, his autonomous Apollo control platform, Mini programs for the Baidu app, cloud services and other ecosystem expansion efforts.

Are those investments paying off?

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Baidu believes that these investments broaden the fight against companies like Alibaba (NYSE: BABA), Tencent (NASDAQOTH: TCEHY), and ByteDance. "data-reactid =" 46 "> Baidu believes that these investments are the fight against companies like Alibaba (NYSE: BABA), Tencent (NASDAQOTH: TCEHY), and ByteDance.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Alibaba competes with Baidu in the virtual assistant and smart market for speakers, and it also sells ads on its markets and digital media platforms. During the first quarter, the installed base of Baidu for DuerOS grew by 279% to 275 million devices annually, while monthly search with voice ratios increased by 817% to 2.37 billion. For comparison, Alibaba recently stated that & nbsp; 10 million of its Tmall Genie speakers were activated since Aug. 2017. "data-reactid =" 47 "> Alibaba competes with Baidu in the virtual assistant and smart speaker market, and it also sells advertisements about the markets and digital media platforms During the first In the quarter, Baidu's installed base for DuerOS grew by 279% per year to 275 million devices, while the monthly voice query increased by 817% to 2.37 billion Alibaba recently said 10 million of its Tmall Genie speakers had been activated since Aug. 2017 .

Baidu & # 39; s Xiaodu speaker.

Baidu & # 39; s Xiaodu speaker. Source image: Baidu.

Tencent unites users with WeChat, the most popular messaging app in China, with 1.1 billion monthly active users and mini-programs for a wide range of services. Daily active users of the Baidu app, which competes with that huge platform, rose 28% to 174 million annually.

ByteDance lures Gen Z users away with Tik Tok, a popular short video app that exceeded 500 million monthly active users last year. Baidu's Haokan, the answer to Tik Tok, increased its daily-active users by only 16% to 22 million during the quarter.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "But that's not all – Tencent and Alibaba also compete with Baidu in advertising, streaming video, cloud, and autonomous driving markets. In other words, if Baidu stops expanding its ecosystem, it can lag behind the ever-changing tech curve. "Data-reactid =" 75 "> But that's not all – Tencent and Alibaba also compete with Baidu in advertising, streaming video, cloud and autonomous driving markets. In other words, if Baidu stops expanding its ecosystem, it can lag behind the ever-shifting technology curve.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Both Alibaba and Tencent reported robust income earlier this week. Alibaba & # 39; s e-commerce turnover increased 51% compared to a year ago. Tencent, despite a slowly recovering gaming business, recorded a 17% increase in net profit. "data-reactid =" 76 "> Both Alibaba and Tencent reported robust earnings earlier this week Alibaba & # 39; s e-commerce revenue increased 51% compared to a year ago.Tencent, despite a slowly recovering gaming business, still 17% lost net profit increase.

Struggling to adapt to a changing market

Baidu's first quarterly report was disappointing, and his dismal advice tells investors to expect anemic revenue growth and higher spending in the coming quarters. The abrupt resignation of his search manager also indicates that the company is struggling to adapt to a changing market.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Baidu has approved a new buyback plan of $ 1 billion but cash could be better spent on strengthening defense against Tencent, Alibaba and ByteDance Investors currently holding Baidu would not panic and sell their shares at these levels, but those looking for a better Chinese tech play should consider Buy Tencent or Alibaba instead. "data-reactid =" 79 "> Baidu authorized a new $ 1 billion repurchase plan to smooth things out, but that cash would be demonstrably better spent on strengthening its defense against Tencent, Alibaba and ByteDance. don't panic and sell their shares at these levels, but those who are looking for a better Chinese technical game may consider buying Tencent or Alibaba.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More From The Motley Fool "data reactid =" 80 "> More From The Motley Fool

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Suzanne Frey, a manager at Alphabet, is a member of the board of directors of The Motley Fool. Leo Sun. owns shares in Baidu and Tencent Holdings. De Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Baidu and Tencent Holdings. The Motley Fool has one disclosure policy."data reactid =" 88 ">Suzanne Frey, a manager at Alphabet, is a member of the board of directors of The Motley Fool. Leo Sun owns shares in Baidu and Tencent Holdings. De Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Baidu and Tencent Holdings. The Motley Fool has a disclosure policy.


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