A man using a laptop computer walks past an illuminated sign for Baidu Inc. at the Baidu Technology Park in Beijing, China. (Photographer: Qilai Shen/Bloomberg)

Baidu's Profit, Sales Top Estimates as Advertisers Return

(Bloomberg) -- Baidu Inc.’s sales and profit exceeded expectations, underscoring the search giant’s recovery even though the payoff from new businesses such as driverless cars remains ambiguous.

Sales jumped to 26 billion yuan ($3.9 billion) in the three months that ended June, topping the 25.6 billion yuan average of analysts’ estimates compiled by Bloomberg. That marks the sixth straight quarter of revenue growth at the company and Chief Executive Officer Robin Li welcomed the result as evidence of growing momentum. But he also warned investors not to to expect "any meaningful revenue" from its AI-driven driverless cars and personal assistants in the coming quarters.

In the short run, the results are good news for an internet giant under pressure after a number of management departures in the past two years. High-profile former Microsoft Corp. executive Qi Lu, brought on in 2017 to run the business, quit from an active role in May, just as Baidu deepened research into fields from autonomous driving to natural language.

Baidu’s Netflix-style service, iQiyi Inc., also reported better-than-projected sales with its subscriber base increasing by 75 percent to 67.1 million users. The video-streaming company forecast revenue this quarter about 4 percent above estimates, sending its shares as much as 9.2 percent higher in extended trade.

“The fundamentals are pointing to a recovery,” said John Choi, an analyst at Daiwa Capital Markets Hong Kong Ltd. “The market was concerned about the slowdown of the search business but as you look at the numbers and metrics that they’re announcing, it seems to be pretty strong.”

News feed and other AI-driven businesses now make up 20 percent of Baidu’s core search revenue, once spun-off units like financial services are excluded. The company is also hoping WeChat-style ‘mini-apps’ that give users access to third-party services without leaving Baidu’s main app will lead to a big jump in usage and advertisements. But CEO Li said other more advanced AI businesses, from its Apollo driverless cars program to the DuerOS personal assistant, would take longer to become substantial money spinners.

“These two business lines are in their very early stage so we do not expect any meaningful revenue contribution in the coming quarters,” he said. “If anyone will be able to generate meaningful revenue we would be the first one to achieve that goal, especially for Apollo.”

U.S. shares of Beijing-based Baidu fell 4.9 percent, to $235.04, Wednesday after a report in The Intercept said that Google is planning a new censored search app in China.

Net income for the recent quarter was 6.4 billion yuan, topping the 4.82 billion yuan expected by analysts. Mobile revenue made up 77 percent of the total, Baidu said, compared with 72 percent a year earlier. The company also forecast third-quarter sales of 27.4 billion yuan to 28.8 billion yuan, in line with the 27.9 billion yuan analysts predicted.

“The mobile Baidu app shows healthy user and activation trends,” CICC analyst Natalie Wu said in a note to clients before the earnings. “We see still high monetization potential for Baidu feeds in the coming 6 to 12 months.”

©2018 Bloomberg L.P.